Advertisement

Why the UK should be gunning for a trade deal Down Under

It might seem a minor matter compared with Brexit, but a trade agreement with Australia is a big deal

It is only the 14th largest economy in the world. It is almost 10,000 miles away. And it mainly specialises in mining, with some sheep farming on the side. As official talks start, many will dismiss a trade deal with Australia as nothing more than a minor side-show of interest only to a few swivel-eyed Brexiteers intent on recreating the Empire. That is a mistake. 

A gateway to the East

It’s not hard to understand why leaders on both sides were so keen to get the talks started. Australia doesn’t have a trade deal with the EU – it is negotiating one at the same time – and while we were inside that trade bloc Australia’s exporters faced tariffs and often quotas, especially on agricultural goods, when they were selling into the UK. All of a sudden, its companies will have a huge new market. Of course, Australia has done just fine without that. Until this year, it had witnessed the longest recorded economic expansion ever. It is a rich country. But a deal with what was historically one of its most significant partners will help it to grow faster. 

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

For Britain, by contrast, it might seem like a minor matter compared with the deal we hope to strike with the EU. After all, the EU is the largest economic bloc in the world, with a combined GDP more than 15 times the size of Australia’s. Yet the Australian deal matters a lot and arguably even more than an EU one. Here’s why. 

Firstly, Australia can be a gateway to the far faster growing Pacific for British firms. True, the Australian economy is not especially large, and New Zealand is just a rounding error in global output. But both countries are a part of a Pacific economy that is booming. Over the course of this century, Asia will be the world’s fastest growing bloc, followed by North America, with Europe some way behind. Regardless of what policies are pursued, demographics make that a certainty. Europe’s population is declining and its output will fall with it. A UK-Australia deal will help plug British companies into that market. The UK has already applied to join the Trans-Pacific Partnership that will link countries such as Canada and Australia with Singapore, Japan and Vietnam among a ring of fast-growing Asian states. That is a potentially a huge market – and a deal with Australia is a great starting point. 

Advertisement - Article continues below

Next, in a global trading economy based increasingly on digital services, language and culture matter far more than proximity. The internet doesn’t have transport costs, so it doesn’t matter whether the customer is ten thousand or one just one mile away. There is a huge English-speaking world into which we can sell e-books, music, design and consulting services, legal advice and financial products. Already the bulk of our exports are services, and an increasing percentage of those are completely digital. Our trade with the English-speaking world can grow far faster than it can with anywhere else – Australia is the perfect place to start. 

A template for future agreements

Finally, and perhaps most importantly, it will be a template for future post-Brexit trade deals. The first deal the UK strikes will set the tone for each one that follows, and it will establish the kind of commercial relationships the UK wants. What should a deal look like? It should be open, tariff-free, with no quotas, and with no restrictions on takeovers, and it should maximise the opportunities for companies and individuals to deal freely with one another on whatever terms they choose. But it should also respect each country’s sovereignty, and ditch all the cumbersome, legalistic baggage that has hampered other trade deals – and the EU most of all – over the last decade. Deals with Japan, the US, China and of course the EU are all far more important in terms of size. But if the Australian deal works, and is seen to work, the UK can replicate it with other countries. Australian and British firms will probably be trading happily with each other long before Brussels ever gets around to agreeing a deal with the UK. 

Advertisement
Advertisement

Recommended

Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020
We're all going to have to be a lot more flexible
UK Economy

We're all going to have to be a lot more flexible

As the world gets older, we'll all have to retire later and finance it for longer. That's going to take a major rethink about an awful lot of things, …
6 Aug 2020
Businesses must be bold if they want to survive
UK Economy

Businesses must be bold if they want to survive

It’s a difficult time for companies, but battening down the hatches is the wrong approach, says Matthew Lynn.
2 Aug 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020