Agreements and Frameworks

Australia’s manufacturing sector is shaped by a combination of international trade agreements and increasingly active domestic industrial policy.

Bilateral FTAs play a significant role in shaping manufacturing outcomes. The China–Australia Free Trade Agreement has reduced tariffs on a wide range of high-value manufactured exports, including pharmaceuticals, car parts and engines, and plastic products, with pre-agreement tariffs of up to 10 per cent phased out. The Australia–United States Free Trade Agreement provides Australian manufacturers with preferential access to the world’s largest consumer market. It eliminated tariffs on almost all automotive products, including the 25 per cent tariff on light commercial vehicles.

Australian Government efforts to expand Australia’s manufacturing sector is evident in the Future Made in Australia agenda, which will allocate $22.7 billion in public funding over the next decade. This policy introduces a National Interest Framework to guide investment into two priority areas. The first is the net zero transformation, focusing on renewable hydrogen, green metals, and low-carbon fuels. The second is economic resilience and security, with an emphasis on critical minerals processing and clean energy manufacturing. The objective is to move Australia further up the value chain by leveraging its resource base and clean energy advantages.

This builds on the earlier Modern Manufacturing Strategy, which committed $1.5 billion to six priority areas: resources technology, food and beverage manufacturing, medical products, recycling and clean energy, defence, and space. Together, these policies signal a shift away from a purely market-led approach toward targeted support for strategic industries.

Trade

Australia’s manufacturing trade position is structurally imbalanced. The economy remains highly competitive in exporting raw materials but relies heavily on imports of finished manufactured goods. This has resulted in a persistent and sizeable trade deficit in manufactured products, increasing exposure to global supply chain disruptions.

Exports

Manufactured goods play a secondary role in Australia’s export profile. In 2019, manufactured exports were valued at around $95 billion, representing roughly one quarter of total exports. Over time, however, export composition has shifted toward less processed products. Primary goods now account for close to three quarters of export value, compared with less than half in the 1990s.

Elaborately transformed manufactures, including advanced machinery, electronics, and specialised equipment, contribute only around $37.7 billion in export value. Australia’s strengths lie instead in food and beverage manufacturing, pharmaceuticals, medical products, and niche industrial goods.

Imports

Australia relies heavily on imports of manufactured goods to meet domestic demand. Accordingly, Australia runs a trade deficit in manufactured goods, estimated at around $180 billion in 2019, or 9 per cent of GDP, importing six dollars of sophisticated manufactured goods for every dollar exported. Key import categories include motor vehicles, refined petroleum products, machinery and equipment, electronics, pharmaceuticals, and consumer goods.

China, the United States, Japan, South Korea, and the European Union are major sources of manufactured imports. Many imported goods serve as intermediate inputs for domestic production, particularly machinery, components, and chemicals used in mining, construction, agriculture, and manufacturing itself.

High import penetration reflects both consumer preferences and structural factors, including scale limitations, labour costs, and the global concentration of manufacturing capacity in Asia.

Investment

Investment is central to efforts to rebuild Australia’s manufacturing base. Manufacturing attracts substantial foreign direct investment, with total FDI stock regularly exceeding $100 billion. In 2021–22, Austrade facilitated 137 manufacturing-related FDI projects valued at $7.4 billion, supporting more than 22,000 jobs.

Trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have supported investment flows by raising the general screening threshold for private foreign investors to $1.4 billion in non-sensitive sectors. In parallel, the government has introduced targeted production tax incentives to de-risk private capital. These include a 10 per cent incentive for critical minerals processing and a $2 per kilogram incentive for renewable hydrogen production.

Despite these measures, structural barriers persist. Medium-sized manufacturers often struggle to access long-term patient capital, leading to calls for greater involvement from industry superannuation funds and public development finance institutions. Energy costs remain a key constraint, with electricity prices for manufacturers increasing by around 180 per cent since 2000. Skill shortages further limit expansion in advanced manufacturing.

Australia’s manufacturing industry, though relatively small in GDP terms, is deeply intertwined with international trade and investment. The sector is characterised by low self-sufficiency and a large trade deficit due to a high dependence on foreign manufactured goods. Australian manufacturing benefits from open trade settings, underpinned by WTO rules and a network of FTAs, that give Australian manufacturers access to export markets and affordable imported inputs.

For readers seeking more information, recommended sources include the Department of Industry, Science, and Resource’s Manufacturing page and the Australia Institute’s report, A Fair Share for Australian Manufacturing.