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. 

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. 

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. 

Recommended

3 December 1984: BT is sold off in a gamble over privatisation
This day in history

3 December 1984: BT is sold off in a gamble over privatisation

In a landmark test of privatisation, the government sold off over half its stake in British Telecom, on this day in 1984.
3 Dec 2020
1 December 1942: the Beveridge Report proposes a welfare state for Britain
This day in history

1 December 1942: the Beveridge Report proposes a welfare state for Britain

With the Second World War still raging, the popular Beveridge Report was published on this day in 1942, proposing a welfare state be set up after the …
1 Dec 2020
How to prepare your business for Brexit
Small business

How to prepare your business for Brexit

Whether we have a Brexit deal or not, new procedures for importers and exporters will apply from 1 January. Get your business ready now.
27 Nov 2020
Are central banks about to start targeting house prices?
House prices

Are central banks about to start targeting house prices?

New Zealand’s finance minister has suggested expanding the remit of its central bank to include an oversight of house prices. John Stepek explains why…
27 Nov 2020

Most Popular

This week’s rally in value stocks is just the beginning
Value investing

This week’s rally in value stocks is just the beginning

The arrival of a vaccine this week saw huge gains in the markets and investors switching out of big-tech growth stocks and into “value” stocks in more…
13 Nov 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Nov 2020
Time for investors to be fearful, not greedy – and sell?
Investment strategy

Time for investors to be fearful, not greedy – and sell?

The Covid-19 crash proved a great investment opportunity. Does the vaccine mean it’s time to sell?
23 Nov 2020