Last week, Trade Minister Simon Birmingham announced the Comprehensive Economic Partnership Deal between Australia exporters and Indonesia markets takes effect from 5 July 2020. This could not have come at a better time given the economic impacts from COVID-19.
Australia's balance of payments surged to a record $10.6 billion in March. The largest in recorded history. This is due to strong export demand for iron ore and surging demand for gold. The lowest Australian dollar for almost 2 decades has also helped increase revenues.
Lastly, we have had the largest sudden fall in imports in our nation's history. The deal will help Australian manufacturers to increase market share in our closest neighbour, extending our national trade surplus.
I believe the following ASX shares are the most likely to benefit immediately.
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Targeted Indonesian market
GrainCorp Ltd (ASX: GNC) will see tariff-free exports of up to 500,000 tonnes of wheat, barley and sorghum to Indonesia each year. This will grow by 5% annually. This defensive share has become more important to our national economy during the pandemic than at any time in its history.
GrainCorp has rebuilt itself over the past 3 years after exports to Indonesia collapsed by over 70% amid drought and intense competition. This provides an opportunity to further rebuild markets into what used to be Australia's largest wheat customer.
Other agricultural companies to benefit in this space include those in the red meat sector of beef and sheep. In this sector, tariffs will be immediately halved to 2.5% and eliminated totally over 5 years. This is likely to provide tangible benefits for Australian Agricultural Company Ltd (ASX: AAC) as well as Elders Ltd (ASX: ELD).
Dairy producers will also see tariffs eventually removed from their products. This creates an opportunity for market leaders like A2 Milk Company Ltd (ASX: A2M), as well as rising challengers such as Synlait Milk Ltd (ASX: SM1).
Steel producers will have annual tariff-free access for 250,000 tonnes of rolled steel coil, exposing additional market share for companies such as BlueScope Steel Limited (ASX: BSL).
Foolish takeaway
Our nation's ability to maintain an overall trade surplus is going to be crucial in the coming months and years. Many countries are set to see dramatic declines in economic activity as a result of the COVID-19 pandemic.
For Australia, free trade deals such as these providing increased access to Indonesian markets are likely to be the difference between a crushing depression and a swift path back to prosperity.
