The financial crisis of 2008 led to a pronounced slowing in the growth of global trade, cross-border capital flows and other measures of globalisation. This slowdown has proved remarkably persistent, suggesting it may be more than just cyclical. The recent populist backlash against globalisation came after it had already slowed, suggesting it is the associated loss of economic dynamism rather than globalisation as such that is driving anti-globalisation sentiment.
Globalisation in Australia peaked in 2010-11 with the terms of trade boom and has declined modestly since then. Survey evidence shows that most people over-estimate the true extent of globalisation. While the reforms that internationalised the Australian economy in the 1980s and 1990s are still mostly viewed positively in Australia, economic reform has lost political momentum.
Protectionist and isolationist sentiment is never far below the surface of Australian politics. Immigration, in particular, is a potential catalyst for anti-globalisation sentiment, even though Australia ranks highly on opinion poll-based measures of migrant acceptance.
Australia’s international trade as a share of GDP is one of the lowest in the OECD. Australia is well integrated into global capital markets, but only ranks 17th on the MGI Financial Connectedness Ranking. Foreign investment in Australia and Australian foreign investment abroad is increasingly dominated by portfolio flows at the expense of direct investment. Australia maintains a relatively restrictive regulatory regime for foreign direct investment (FDI) based on the OECD’s measure of FDI restrictiveness.
At around 1 per cent of the population in the December quarter 2017, net overseas migration to Australia is not large by historical standards and only slightly above the post-war average of 0.7 per cent. Twenty-six per cent of the Australian population was born outside Australia based on the 2016 Census. This is only slightly higher than the 22.6 per cent share of foreign born at the time of the first Census in 1901, although the composition of the foreign-born population has changed over time.
While Australia has a high urbanisation rate, Australia’s largest city, Sydney, is only the 98th largest urban centre in the world by population, 40th largest by land area and 958th by urban population density. Increased urban density would enable Australia to better capture productivity gains from agglomeration effects.
- Measures Australia can take to improve its openness to the rest of the world and capture the associated economic and social benefits from globalisation include the following:
- Continue to unilaterally lower tariff and non-tariff barriers with a view to eliminating barriers to trade in goods and abolish Australia’s anti-dumping system.
- Remove trade distorting subsidies and government procurement policies in line with Productivity Commission recommendations.
- Continue to pursue bilateral and plurilateral trade agreements, while working within the World Trade Organization to pursue multilateral agreements on specific issues such as digital commerce.
- Encourage the United States to re-join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Facilitate the uptake of the provisions of free trade agreements by Australian business, particularly small-medium enterprises (SMEs).
- Lower barriers to digital commerce.
- Narrow the focus of Australia’s foreign investment screening process to national security considerations only