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With global economic headwinds expected to hit Australia’s primary resource exports, the vitality, resilience and long-term prosperity of the Australian economy is once again being called into question. And yet we are still left wondering, why do we keep putting ourselves in this precarious position?
Over the past 30 years, Australia’s economy has undergone a dramatic shift, moving from a diversified, industrialised base to one driven by resources and services exports, marked by low levels of economic and industrial complexity.
The 1990s kicked off what many would consider a golden age of growth, fuelled by sweeping microeconomic reforms and a surging global demand for commodities. Policymakers drove major structural changes, boosting productivity and competitiveness, but at the cost of hollowing out the nation’s industrial base. Resources, energy, agriculture, services and property speculation came to dominate the economic landscape.
Key reforms like floating the dollar in the 1980s and opening up trade and financial markets set the stage for sustained prosperity. By the early 2000s, Australia was riding high on China’s rapid industrialisation and urbanisation, becoming a major supplier of iron ore, coal and other resources during a record-breaking mining boom. Smart monetary policy by the Reserve Bank of Australia and sound fiscal management helped Australia weather global shocks like the 2008 Global Financial Crisis.
But as the mining boom waned in the mid-2010s, cracks began to show. Stagnant wages, rising household debt and a housing affordability crisis revealed deeper structural problems. Slower growth in key trading partners, especially China, and geopolitical shifts like Beijing diversifying supply chains further compounded these challenges.
In the past five years, economic vulnerabilities have been exposed by shocks like the COVID-19 pandemic, leading to a slowdown and highlighting long-term structural flaws. Policymakers have turned to low interest rates and fiscal stimulus, but critics argue these measures are reactive, lacking the long-term vision needed to diversify the economy and boost resilience.
Now, amid mounting global and regional competition and a growing urgency by major trading partners to diversify their own supply chains, Australia stands at a crossroads, with our national dependence on low complexity, low diversity export-dominated industries subject to the whims of global markets leaving the already anaemic and sclerotic Australian economy in an increasingly precarious position.
At the core of this is expectations and forecasts that the pillar of Australia’s export economy, iron ore, is set to plummet in value with a devastating impact on our national accounts, the vitality of the Australian economy, at a time when our long-term economic and fiscal outlook is already rather lacklustre.
Demonstrating this point is Alex Gluyas of The Australian Financial Review, in which he warns, “Westpac has warned that iron ore prices could collapse 30 per cent this year to about US$70 a tonne when Rio Tinto floods the market with fresh supply, deflating hopes of a sustained rebound for Australia’s key export...
“The data – which showed annual imports of the steel-making ingredient at a record – coincided with supply disruptions at Australia’s largest iron ore export hub Port Hedland, which closed over the weekend due to a tropical cyclone developing offshore of the Pilbara region of Western Australia.”
House built on pillars of sand
It is by now well known that Australia’s economic house is largely built on pillars of sand, utterly dependent on an ever-shrinking pie, dominated by government-dominated industries like healthcare, real estate speculation, a small niche services sector, and higher education, all of which are propped up by the overwhelming might of the continent’s resource wealth and, to a lesser extent, agricultural wealth.
The warning of significantly lower iron ore prices – expected by late-2025 on the back of a glut in global supplies – follows the opening of new mines in Australia and Africa, a slump in Chinese demand and a devaluation in the yuan, coupled with the specter of US trade tariffs on Chinese goods and broader trade warfare spearheaded by the second Trump administration, all combine to place immense pressure on Australia’s stagnating economy.
Gluyas adds, “While iron ore prices have been resilient so far this year, the major mining stocks are mostly flat as financial markets await further clues on China’s support package.”
While this utter dependence on China has been the butt of many a joke and comedy sketch, including the infamous Utopia skit, Australia has continually failed to address the fundamental structural weaknesses that characterise Australia’s economy, rather we have sought to effectively double down on said vulnerabilities, including single points of failure despite the lessons learned during COVID-19, for example.
Rather, Australia has continued to pursue “burnout economics” that continues to expose the cracks in the engine that is the national economy, which are then subsequently papered over through various avenues, mainly quantitative easing and a record migration program that boosts gross domestic product, just not at the per capita level.
Recognising this, the Financial Review’s economics editor, John Kehoe, said in late-2024, “Labour productivity has failed to improve since 2016; business investment is languishing close to 1990s recession levels; there has been no serious economic reform; undisciplined government spending is in vogue after too much stimulus during the pandemic; and the Reserve Bank of Australia has been forced to push up interest rates to grind household and business activity to a halt and bring inflation under control.
“As a result of all of this, economic growth slowed to just 0.8 per cent through the year to September, and in per-person terms, the economy has been shrinking for almost two years after adjusting for population growth. It is the most prolonged downturn since the 1991 recession. A better measure of living standards – disposable income per person – is 10.5 per cent below its peak.”
Reversing our self-imposed decline
No doubt a lot of readers will be saying, “Well duh, of course we need a strong economy to have strong national security”, and that does go without saying.
In order to reverse this self-imposed period of decline, Australia, as a nation, needs to break free from the trap of “luxury beliefs” and “luxury economics” – prioritising environmental, social and governance goals, “ethical” investments and other high-minded ideals detached from reality.
These notions, rooted in the outdated “End of History” theory, ignore the harsh realities of a rapidly deteriorating geopolitical landscape and the weaponisation of every aspect of contemporary national life.
If a conflict erupts between the US and China, Australia’s economy would be shattered. Core exports like iron ore, gas, and coal could halt overnight, whether by government order or shipping insurers refusing to cover vessels in high-risk zones. Conversely, imports of critical goods – from pharmaceuticals and microprocessors to refined oil and renewable energy tech – would be severely disrupted if not outright cease, plunging the nation towards a pre-industrial state.
On top of this, capital flight would skyrocket, as Chinese investors offload Australian property and global institutions seek to limit exposure to what could become the world’s most “developed” banana republic.
So how do we steer Australia away from the rocks?
First, Australia needs a clear commitment from policymakers and the public to become economically sovereign, secure. and competitive; this, like losing weight or getting into shape, will require some hard work and consistent commitment. This means building resilient supply chains, cultivating a motivated and skilled workforce and strengthening the foundational structural pillars of the Australian economy.
The first step to achieve this is the development of a cost-effective, reliable national energy market that prioritises long-term industrial growth alongside environmental goals. In this technology-driven era, it is possible to have our cake and eat it too.
Simply put, cheap, dependable baseload power is essential to expanding Australia’s industrial base. Ideology has no place here – pragmatism must prevail.
Second, Australia needs lower, globally competitive tax rates – both personal and corporate – instead of relying on subsidies that prop up unproductive industries. The lesson of our failed auto industry is clear: the heavy hand of government stifles innovation.
Rather, policymakers should create an environment where industry can thrive without interference and provide the explosive economic opportunities generations of young Australians feel have been denied to them and begin diversifying the national economy away from banana republic status.
As Dimitri Burshtein of Eminence Advisory warned, “Canberra is driving us down the long, slow road to economic ruin.” Burshtein argued that competitive taxes, limited regulation and restrained government spending are essential for prosperity. Yet governments keep throwing “sand into Australia’s economic engine”, crippling growth and creating inflation.
Meanwhile, Dr Kevin You of the Institute of Public Affairs echoed this, highlighting the damage from over-regulation and mismanagement.
"Australia used to have some of the cheapest electricity in the world – now we’re ranked 52nd. On corporate and personal tax, we’re near the bottom of the developed world. Bureaucracy is strangling businesses, pushing us further into economic self-harm,” Dr You told Senate lawmakers.
Australia faces a clear choice: embrace bold reforms to secure our prosperity or continue down a path of decline. The clock is ticking – and only consistent, considered and decisive action can turn the tide.
Final thoughts
Despite the rhetoric and lofty ambition highlighted by both sides of the political debate, this all paints a fairly gloomy picture for the average Australian, no matter the demographic group in which they fall, but especially the younger generations.
Declining economic opportunity, coupled with the rapidly deteriorating global and regional balance of power and the increased politicisation of every aspect of contemporary life, only serves to exacerbate the very reality of disconnection, apathy and helplessness felt by many Australians.
This attitude is only serving to be compounded and creates a growing sentiment that we are speeding towards a predestined outcome, thus disempowering the Australian people and, to a lesser extent, policymakers, as we futilely confront seemingly insurmountable challenges with little to no benefit and at a high-risk/reward calculation.
Taking into account the costs and implications, it is therefore easy to understand why so many Australians, both in the general public and within our decision-making circles, seem to have checked out and are quite happy to allow the nation to continue to limp along in mediocrity because, well, it is easier than having lofty ambitions.
If both Australian policymakers and the Australian public don’t snap out of the comforting security blanket that is the belief in the “End of History”, the nation will continue to rapidly face an uncomfortable and increasingly dangerous new reality, where we truly are no longer the masters of our own destiny.
Our economic resilience, capacity and competitiveness will prove equally as critical to the success in the new world power paradigm as that of the United States, the United Kingdom or Europe and we need to begin to recognise the opportunities presented before us.
Expanding and enhancing the opportunities available to Australians while building critical economic resilience, and as a result, deterrence to economic coercion, should be the core focus of the government because only when our economy is strong can we ensure that we can deter aggression towards the nation or our interests.
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at
