Free trade could be expensive for Australia

As for Australia, recent policy trends have merely entrenched our vulnerability in the international economy. I shudder to think what we will become of Australia if we eventually sell off our farms and land to foreigners when our manufacturing prowess rates so poorly when compared to many other developed nations.

While we hope for the best, our ties with the Chinese economy will mean that any future decline in the world economy will hit Australia hard. With the 25 per cent weighting of our local market to the materials, or resources sectors, this dual reliance saw the Australian sharemarket fall by 10 per cent in the first half of 2010 whereas the global sharemarket fell by only 4 per cent. One can also remember the Australian dollar dropping 33 per cent against the US dollar on a monthly average basis from its peak of 96c in June 2008, not long before the global financial crisis climaxed in September that year, to a trough value of 64c in January 2009.

What is now worrying for Australia is that only a major economic slowdown may reduce the value of the Australia dollar to help make its non-commodity goods and services exports and tourism more attractive for foreign buyers as high international commodity prices continue to shield many mining and rural industries from the worst effects of currency appreciation.

To conclude, yes Australia remains a lucky country when compared to other Western nations (largely because of its minerals and fuels in the ground), yet our growing trading reliance on China and our own housing bubble spells out that all is not well in this era of so-called freer trade.