Australia’s unprecedented commodities boom caused “considerable damage” to its economic relationship with East Asia, according to a senior economist.

Tom Taylor, the head of international economics at the National Australia Bank (NAB), says that the boom sent the Australian dollar so high, it helped hollow out other areas of the economy, which became uncompetitive as a result.

In an interview with GTR to mark the release of a report on the improved trade integration Australia has enjoyed with East Asia since the end of the boom, Taylor describes the period as “a sugar high”, a once in a century event off which the country has to wean itself.

“What was going to be left to replace them? Not very much in term of traditional manufacturing. We [Australia] were getting all the immediate benefit of very high commodity prices.

“In some ways it was too much of a good thing: it was pumping money into the economy, helping the budget, helping our incomes, but eroding the chances we would have of having a broader structural engagement with Asia outside narrow commodities sectors as the years went by and more and more factories shut and more tourist locations found themselves,” he says.

East Asia absorbs one-eighth of Australian produce, accounting for A$210bn of the country’s A$1.6tn GDP in 2015. Two-thirds of Australia’s exports go to the region, with which successive Australian governments have negotiated a series of free trade agreements.

The decline in China’s property sector and the heavy industries associated with that hit Australia hard.

“Steel industry inputs are the biggest item in resource exports to East Asia – worth A$65bn in 2015, down from almost A$90bn in 2013. As China accounted for A$43bn of these exports in 2015, trading conditions in the Chinese steel industry have become the most important single driver of Australian exports. Chinese steel has had a difficult period, with revenue dropping below earlier levels as overcapacity drives steel output prices down,” the report reads.

“If you’d said in 2001/02 that we would get US dollar parity, you wouldn’t have believed it. But that’s what happened, and it really damaged our competitiveness, very badly,” Tom Taylor, NAB

Concentration of the economy to so few industries may have hamstrung others forever, Taylor argues.

“Manufacturing is not picking up, we probably lost just too much manufacturing capacity there. It will take a long time for that to come back if it ever comes back. The car industry here is virtually shut down. We’re in the process of shutting down the last white goods factory, I can’t see that sort of stuff coming back again. But in areas like agri-foods, we’re picking up quite nicely.”

The report suggests that with the “normalisation” of the Australian dollar, other industries will be given a chance to flourish. Service sectors such as tourism, in particular, have enjoyed a revival as Asian tourists view Australia as a more affordable destination.

Meanwhile, commodity markets have also experienced a huge increase in volume sales, even if value is down. This, Taylor argues, will help maintain jobs and economic growth. It may also have resulted in a diversifying of the commodities sector, with the likes of gold and mineral sands picking up some of the lag left by coal and ore.

“Take our trade with China, it’s broadened out so that it’s not just heavily reliant on exports and coke and coal going into Chinese blast furnaces. We’re now doing a big trade in gold which means we’re hooked much more into Chinese investor decisions on gold bars and coins. We’re hooked into jewellery demand. We’re hooked into mineral sands, where there’s big Chinese demand for stuff to go into ceramics and pigments,” Taylor says.

There was a time, he says, that nobody in Australia thought the Aussie dollar would achieve half the value of its US counterpart. The fact that it achieved parity shows how explosive that period of Australia’s economic history was.

“If you’d said in 2001/02 that we would get US dollar parity, you wouldn’t have believed it. But that’s what happened, and it really damaged our competitiveness, very badly. What we’ve seen therefore is a normalisation in the dollar,” he says.

The report argues that despite the damage the downturn has done to the economy and the value wiped off Australian industry, the country is now better placed to enter into a balanced and more integrated trading relationship with East Asia.

The suggestion is that with time, Australia may be able to forge more realistic and sustainable bonds with East Asian economies. However, it will be a long time before the country fully recovers from what has been a devastating downturn for some sectors of the economy.