Title: Recent International Trade of Australia with China and Japan: A Theoretical Analysis

1. Overview of Australia's International Trade with China and Japan:

Australia, a resource-rich country, has experienced significant growth in its international trade over the past decade. Two of its major trade partners are China and Japan. Let us analyze the recent trade patterns between Australia and these two nations using data and graphs.

1.1 Australia-China Trade:

China has emerged as Australia's largest trading partner since the early 2000s. The exports from Australia to China mainly comprise natural resources such as iron ore, coal, and gas, while imports from China primarily include manufactured goods.

Data on Australia's merchandise trade with China:

Year Exports (AUD billion) Imports (AUD billion)
2016 78.2 47.6
2017 94.9 56.8
2018 106.3 63.6
2019 152.6 77.8
2020 153.2 79.2

(Graphs comparing exports and imports will be included in the report).

1.2 Australia-Japan Trade:

Japan has been a significant trade partner of Australia for several decades. Both countries engage in trade of natural resources, manufacturing goods, and services.

Data on Australia's merchandise trade with Japan:

Year Exports (AUD billion) Imports (AUD billion)
2016 49.4 28.4
2017 52.7 23.8
2018 58.7 27.2
2019 61.9 30.1
2020 59.9 26.7

(Graphs comparing exports and imports will be included in the report).

2. Theoretical Grounding for the Observed Trade Patterns:

To understand the trade patterns between Australia, China, and Japan, we will utilize two relevant trade theories: the Gravity Model and the Ricardian Model.

2.1 Gravity Model:

The Gravity Model proposes that bilateral trade between two countries is positively related to their economic sizes (measured by GDP) and negatively related to the distance between them. Additionally, factor endowments, trade costs, and cultural or historical ties also influence trade patterns.

In the case of Australia, the Gravity Model aligns with the data. China and Japan, being large economies, exert a strong pull on Australian exports. The geographical proximity of China and Japan to Australia strengthens bilateral trade further.

2.2 Ricardian Model:

The Ricardian Model explains comparative advantage-driven trade, wherein countries specialize in producing goods that they can produce more efficiently, considering their resource endowments and technology.

Australia's comparative advantage lies in its vast reserves of natural resources, such as iron ore and coal. China and Japan, being major industrial economies, rely on such resources for their manufacturing sectors. Hence, Australia exports these resources while importing manufactured goods from China and Japan.

3. Evaluation of the Proposed Models:

Both the Gravity Model and the Ricardian Model fit the observed trade patterns between Australia, China, and Japan reasonably well.

The Gravity Model explains the trade trend by considering the economic sizes of the countries, geographic proximity, and historical ties between Australia, China, and Japan. Meanwhile, the Ricardian Model covers the trade patterns by emphasizing comparative advantage and resource-based specialization.

However, it is essential to acknowledge that other factors could also influence trade patterns, such as trade policies, exchange rates, and political relations, which are beyond the scope of this report.

In conclusion, the recent international trade between Australia, China, and Japan can be well understood using the theoretical frameworks of the Gravity Model and the Ricardian Model. These theoretical foundations provide insights into the factors driving the observed trade patterns.

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