The EU and Australia reach a free trade agreement to hedge against uncertainties and risks from the United States.

The European Union and Australia reached a comprehensive trade agreement on Tuesday, marking the latest move by U.S. allies to reassess economic relations amid increasing global geopolitical uncertainties.

This agreement, negotiated over nearly eight years, will eliminate most tariffs on goods traded between the two sides and facilitate access to Australia’s key mineral resources for the EU.

Under this highly anticipated trade deal, the EU will remove approximately 98% of tariffs on Australian imports, including wine, dairy products, wheat, barley, and seafood; in return, Australia will eliminate over 99% of tariffs on EU goods, mainly involving dairy, automobiles, and chemicals.

European Commission President Ursula von der Leyen stated in a release, “In turbulent times, we send a strong signal to the world — friendship and cooperation are vital.”

She added, “Although the EU and Australia are distant geographically, we share a high degree of alignment in worldview. As we establish new dynamic cooperation in security, defense, and trade, both sides are bringing themselves closer.”

Earlier this week, von der Leyen met with Australian Prime Minister Anthony Albanese to conclude the trade negotiations launched in 2018.

At a press conference on Tuesday, Albanese said the agreement would promote Australia’s economic development. The EU’s elimination of nearly all tariffs on Australian critical minerals will help stabilize global supply chains.

It is reported that the bilateral negotiations stalled in 2023, mainly due to disagreements over expanding export quotas for Australian lamb and beef to the EU, while the EU demanded greater access to key mineral resources and lower tariffs. As the Trump administration increased tariffs abroad, negotiations accelerated.

Currently, the EU mainly imports mineral and agricultural products from Australia and exports machinery, transportation equipment, and chemicals to Australia.

Almost all Australian manufacturing products and mineral exports entering the EU market will be tariff-free. As Australia’s second-largest source of foreign investment, EU investments are expected to grow by over 87%.

The agreement also includes a bilateral safeguard mechanism: if a surge in Australian imports impacts the EU market, the EU can take measures to protect its sensitive industries.

Key Mineral Supply

The EU will secure specific supplies of critical raw materials such as aluminum, lithium, and manganese from Australia, which are vital for the EU’s economic security.

The EU pointed out that trade in critical raw materials “is highly susceptible to sudden economic or geopolitical shocks,” making partnerships with reliable allies essential for ensuring supply security.

On the security front, the EU and Australia also committed to strengthening cooperation in crisis management, maritime security, and disruptive technologies like artificial intelligence (AI).

Diversification of Trade Relations

Over the past year, the EU has accelerated the signing of trade agreements with multiple partners to diversify economic, trade, and security cooperation risks. This trend has become more evident as the U.S. is increasingly viewed as unreliable.

U.S. President Trump’s imposition of high tariffs on allies and others disrupted the rules-based trade system; simultaneously, actions in Venezuela and Iran, without prior consultation with allies, further strained traditional partnerships.

On Tuesday, von der Leyen stated during a speech to the Australian Parliament on the Middle East situation, “The geopolitical and economic shocks caused by the Iran conflict mean no country can remain unaffected.”

Current regional conflicts have reignited concerns over energy supply tensions and rising inflation in Europe. The EU is heavily dependent on imported crude oil and natural gas.

Earlier this year, the EU reached a trade agreement with India, eliminating or reducing tariffs on over 90% of goods; last year, it completed trade negotiations with Indonesia.

Additionally, the European Commission announced on Monday that a trade agreement with the Southern Common Market (Mercosur) is expected to enter provisional effect starting in May.

(Source: Caixin Global)