Spotlight on Australia - July 2026

The Union Jack remains on Australia’s flag, but with trade it is all about Asia. After the Second World War, Japan and now China have dominated Australia’s exports. Rich in resources, Australia has fueled the east-Asian economic miracles and has become rich. India could be next.

Farewell to old England forever

As a former outpost of the British Empire, Australia’s trade until the 1960s reflected its integration into British supply chains (see chart below). Australia provided wool for the British textile industry and wheat and beef for the British food industry. In the 1960s, Australia was still providing around half of Britain’s wool imports.

But once Britain reluctantly turned towards Europe and synthetics began to displace wool and cotton, Australia’s importance as a trade partner began to wane.

Britain finally joined the European Economic Community in 1972 after initially being vetoed by France in the 1960s. 

Turning Japanese  

However, while the importance of Britain as an export destination was decreasing, Japan’s importance accelerated (see chart below). The 1957 Australia-Japan Commerce Agreement underlined the growing importance of the bilateral relationship. 

After recovering from the Second World War, Japan once again focused on manufacturing, and by the 1970s, the Japanese economic miracle was in full bloom.

To fuel its growing economy, Japan needed to import the natural resources it did not have. It turned to Australia for wool, iron ore, and coal.

The 1980s also saw growing Japanese investment in Australian mining and tourism industries, including Australia’s nascent LNG industry. More recently, Japanese investment has helped develop Australia’s critical mineral industry.

In 2024, 79% of Australia’s exports to Japan comprised coal, LNG (petroleum gas), and iron ore (see chart below).

Source: Observatory of Economic Complexity

China and the commodity supercycle

Australia must be the lucky country because just as the Japanese economic miracle hit the 1991 asset price bubble collapse, China was modernising.

“Poverty is not socialism. To be rich is glorious.” Den Xiaoping.

Under Deng Xiaoping’s “four modernisations”, China saw perhaps the greatest economic and urban transformation in human history. Chinese cities have gone from bicycles and Siheyuan to EVs and high-rise apartment blocks. China’s share of global GDP (PPP) increased from 2% in 1980 to 6% in 2001, and 20% in 2025.

Like Japan before it, China also needed Australia’s resources to fuel its economic rise, leading to soaring bilateral trade (see chart below).

China’s deregulation of the housing market in 1998 and its entry into the WTO in 2001 were pivotal. The subsequent property and manufacturing boom led to a rapid increase in the demand and price of various commodities, including iron ore. The commodity supercycle was here, and Australia’s terms of trade soared as a result (see chart below).