EU, Australia seal trade deal as Western countries hedge against U.S. risks

The European Union and Australia agreed to a sweeping trade deal on Tuesday, the latest move by U.S. allies to rethink their economic ties amid deepening global geopolitical uncertainty.

The agreement, which resulted from almost eight years of talks, would remove most of the tariffs the two sides had imposed on each other's goods and allow the EU greater access to critical mineral supplies from Australia.

Under the long-awaited trade agreement, the EU is set to eliminate around 98% of its duties on Australian goods exports, including wine, dairy, wheat and barley, and seafood. In return, Australia would remove over 99% of tariffs on EU goods, particularly dairy, motor vehicles and chemicals.

"We are sending a strong signal to the rest of the world that friendship and cooperation is what matters most in times of turbulence," European Commission chief Ursula von der Leyen said in a statement on the commission's website on Tuesday.

"The EU and Australia may be geographically far apart but we couldn't be closer in terms of how we see the world," she added. "With these dynamic new partnerships on security and defense, as well as trade, we are moving even closer together."

European Commission leader von der Leyen met Australian Prime Minister Anthony Albanese earlier this week to wrap up the negotiations that started in 2018.

Negotiations had stalled in 2023 over certain disagreements, with Canberra seeking greater quotas for lamb and beef exports to Europe while the EU pushed for better access to Australia's critical minerals and lower tariffs. Both sides later stepped up talks in the wake of higher U.S. tariffs under the Trump administration.

EU exports to Australia are expected to grow by up to 33% over the next decade, with export value swelling to €17.7 billion ($20.5 billion) annually. The EU enjoyed a surplus of €28 billion in goods trade with Australia in 2024.

The EU mostly imports mineral and vegetable products from Australia while exporting to machinery and appliances, transport equipment, and chemicals to the Asia-Pacific country.

Almost all Australian exports of manufactured goods and mineral resources will face zero import tariffs into the European Union. Investment from the bloc — Australia's second-largest source of foreign investment in 2024 — could grow by over 87%, according to the government statement.

The agreement includes a bilateral safeguard mechanism that allows the EU to take measures to protect sensitive European products and their producers if a surge in imports from Australia leads to damage to the EU market.

The European bloc is also set to secure certain supplies of critical raw materials (CRM) from Australia, such as aluminum, lithium and manganese, which are vital for the EU's overall economic security.

"Trade in CRMs is currently easily disrupted by sudden economic or geopolitical shocks," the EU said in the statement, stressing that partnerships with "reliable partners" are essential for protecting its supply.

The bloc has been seeking to reduce dependency on China, particularly in critical minerals where Beijing has imposed ‌export ⁠controls on some key resources.

The European Union has pushed to clinch new agreements with trade partners over the past year in an effort to diversify its economic relations, defense and military security partnerships that have come under threat as the U.S. appears to be increasingly unreliable.

U.S. President Donald Trump's campaign to target even U.S. allies with hefty tariffs, upending the rules-based trading system, as well as launching surprise attacks in Venezuela and Iran without prior warnings to major allies, has strained ties between Washington and many of its traditional partners.

Leaders of Western nations, most notably Prime Minister Mark Carney of Canada, have called on the "middle powers" to work together to counter the rise of unilateralism among global superpowers.

Speaking at the Australian Parliament about the ongoing conflict in the Middle East that has sent global oil prices soaring, von der Leyen said on Tuesday that "none of us is immune to the shocks, both geopolitical and economic, that the war in Iran brings to our populations."

The regional war has reignited fears of an energy supply squeeze and inflation shock in Europe, which relies heavily on imported crude oil and natural gas.

The EU also reached a trade deal with India earlier this year that will remove or reduce tariffs on more than 90% of goods traded between the two after having concluded negotiations on a trade agreement with Indonesia last year.

A trade deal with the South American bloc Mercosur, including Argentina, Brazil, Uruguay, and Paraguay, is expected to start taking effect on a provisional basis from May, the European Commission said Monday.