Chart of the Month - August 2026

Because of its geographic location, natural resources, and diplomatic work, Australia has become a key hub in the Asia-Pacific. The kangaroo faces north and east! The diagram below shows Australia’s central place in the region’s economic architecture.

Source: DFAT and own updates

How Australia became an Asia-Pacific hub

1.  A changing identity

For decades, Australia saw itself as a British outpost, but through the experience of the Second World War and immigration from Asia starting in the 1970s, Australia came to see itself as part of Asia and the Pacific.

“Australia may not be an "Asian" country anymore than it is "European" or "North American", but it is definitely part of the East-Asian Hemisphere. Our culture and society are uniquely Australian, but they encompass qualities which are increasingly influenced by the cultures of our near neighbours.” Gareth Evans, former Australian foreign minister.

Today, over 32% of Australians were born overseas, with India (1st), China (3rd), the Philippines (5th), Vietnam (6th), Nepal (8th), Sir Lanka (9th), and Malaysia (10th) ranking as major source countries.

2.  Economic opportunity

Starting with Japan in the 1950s, Australia also saw Asia as an economic opportunity. The economic miracles of Japan, Korea, south-east Asia, and China needed Australian raw materials to fuel their growth.

Initially, Australia simply exported natural resources from behind a tariff wall. But as deregulation in the 1980s opened up the Australian economy to the world, two-way trade and investment with Asia soared and became more diverse (see chart below).

Since the 1980s, Japan has invested in Australian minerals, including more recently critical minerals. In the last decade, China and India have also invested heavily. However, the US and UK remain Australia’s largest source and destination of Australian FDI. Japan ranks fourth in terms of outward and inward FDI with Australia.

Australia trades heavily with ASEAN nations but so far hasn’t taken advantage of investment opportunities.

Source: DFAT

A key architect of regional infrastructure

“A core challenge for Australia is - how do we best prepare ourselves for the Asia Pacific century - to maximise the opportunities, to minimise the threats and to make our own active contribution to making this Asia-Pacific Century peaceful, prosperous and sustainable for us all.” Kevin Rudd, former Australian prime minister.

As Australia opened up its economy to free trade in the 1980s, it pursued a policy of “open regionalism” in the Asia-Pacific. That is building free trade in the region through one trade agreement at a time.

Australia has also worked hard to keep the US involved. For example, Australia was influential in forming APEC (Asia-Pacific Economic Cooperation) in 1989.

During the 2000s, when bilateral FTAs were in vogue, Australia negotiated several bilateral agreements including with Singapore (2003), Thailand (2005), US (2005), Chile (2006), Malaysia (2013), Korea (2014), Japan (2015), and China (2015). Australia also continued to push for progress at the regional level, securing the ASEAN-Australia-New Zealand agreement in 2010.

All this hard work with APEC, regional, and bilateral agreements finally paid off with the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018. The CPTPP covers around 15% of global GDP and aims to eliminate 99% of tariffs between members.

The CPTPP evolved from the Trans-Pacific Partnership, which was an FTA originally championed by the US. But when the US pulled out of the TPP in President Trump’s first term, Japan and Australia stepped up and led the way forward with the CPTPP.

The CPTPP is also exploring a trade agreement with the EU.

“In an uncertain global trading environment, the CPTPP provides stability, predictability, and high-standard trade rules that benefit businesses and communities across our region and beyond.” Don Farrell, Australian minister for Trade and Tourism.

Australia is also a party to the 2022 Regional Comprehensive Economic Partnership Agreement (RCEP) along with many of the Asian CPTPP members. RCEP focuses on the Asian region and includes China and Korea. ASEAN countries led its creation. RCEP is slightly less ambitious than the CPTPP in terms of free trade, standards, and labour laws, but covers nearly 30% of global GDP. It can also act as a bridge to the more comprehensive CPTPP for China and Korea.

The addition of the 2020 Pacific Agreement on Closer Economic Relations (PACER) Plus, which includes most of the South Pacific nations, truly puts Australia in the centre of the Asia-Pacific economies.

Australia is also the leader in providing aid to the South Pacific (see chart below).

Final thoughts

As a small-open economy with large amounts of agriculture, mineral, and service exports, Australia benefits greatly from free trade in the region. Investors in Australia can also enjoy these benefits. And these benefits should only increase if China, India, Korea, EU, and possibly the US end up joining the CPTPP in the future. There is also huge untapped potential for Australian investment in its near neighbours.