The price of a country's exports relative to the price of its imports. When it rises, Australia earns more for what it sells and national income rises.
The terms of trade is an index of export prices divided by import prices. Australia's swings with the prices of iron ore, coal and gas.
Why it matters
A rising terms of trade lifts national income, company profits, tax revenue and usually the Australian dollar, without anyone working more. The mining boom of the 2000s was largely a terms-of-trade boom.
