Australia is on the cusp of a potential boom in services exports that could underwrite our continued prosperity if protectionist sentiment does not interrupt the free trade dialogue that has worked to the advantage of countries around the world.
Overseas appetite for Australian services – including tourism, health and education – is part of a global trend in which growth in such areas is already outstripping the growth in goods trade and could do so for up to two more decades*.
An analysis by Oxford Economics and HSBC has found that if governments resist calls for more trade barriers, service exports will average 7 per cent annual growth and contribute USD12.4 trillion to global trade flows by 2030, up from just USD4.9 trillion last year*.
This strong performance would be fuelled by technological advances, rising consumer spending and falling travel costs. Together, this confluence of factors should boost the sector even as commodity price volatility and subdued investment spending restrict growth in goods trade to a more sluggish 3 per cent this year and a subsequent 6 per cent a year till 2030*.
In Australia, tourism and travel services are likely to account for over half of service export revenue over the next four years and business-to-business services such as financial services will become an increasingly important source of revenue by the 2020s*.
Other parts of the world will not fare as well if new trade barriers are implemented as a result of a groundswell of protectionist sentiment in 2016.
If tariff and non-tariff barriers arise due either to US trade policy changes mooted by President-elect Donald Trump or a so-called “hard Brexit” in the UK, the combined value of goods and services trade in 2030 could drop by 3 per cent to USD48.8 trillion from a projected USD50 trillion*, according to our analysis.
The impact of such a decline would no doubt be significant. The OECD has found wages could rise by as much as 8 per cent and jobs could increase by more than 3 per cent if G20 economies halved their trade barriers1, so it is only logical that such a process would work in reverse if governments bow to protectionism.
Australians need look no further than China to realise the benefits of free trade – particularly in relation to services exports. The country is actively seeking to reduce its reliance on the labour-intensive manufacturing and heavy industry that propelled the first stage of its meteoric rise. Instead, the focus now is on boosting domestic consumption, private and service-sector activity and higher tech, more value-added manufacturing.
Companies that cater to China's evolving appetites and needs – be they in education, healthcare, entertainment or even take-away coffee – continue to see big business opportunities2 and the country is likely to account for 18 per cent of Australia's total services revenue by 2030*.
Much of this relationship will be made possible by the China-Australia Free Trade Agreement (ChAFTA) – a pact which just one year on from its inception is yielding tangible results.
In the first three quarters of 2016, as tariffs were cut, the value of some Australian agricultural exports including fresh cherries and abalone to China at least doubled3. Over the same period, exports of medicaments for therapeutic use grew more than 90 per cent to AUD523 million and bottled wine exports grew more than 40 per cent to AUD309 million3.
ChAFTA's documented impact on our economic activity should spur Australia to retain its focus on other trade pacts that would not only allow us to capitalise on the emerging middle class in Asia, including the Regional Comprehensive Economic Partnership, but also to boost our trade with other nations.
History shows that open trade, based on strong rules, brings greater economic growth over the longer term than any closed trade system. Australia needs to heed that lesson if it is to take full advantage of the upcoming global boom in services exports.
Companies that cater to China's evolving appetites and needs - be they in education, healthcare, entertainment or even take-away coffee – continue to see big business opportunities and the country is likely to account for 18 per cent of Australia's total services revenue by 2030.
STEVE HUGHES, MANAGING DIRECTOR AND HEAD OF COMMERCIAL BANKING, HSBC BANK AUSTRALIA