Australia and the European Union signed a historic deal this week, liberalizing bilateral trade, weakening American and Chinese leverage over both, and cementing a crucial middle-power partnership.
Trade talks between Brussels and Canberra started in 2018 but collapsed in 2023; Australia wanted to export more beef and lamb to Europe, while the EU wanted lower tariffs on manufactured goods and better access to Australian critical minerals. This time around, both sides were ready to compromise.
As part of the deal, some Australian exporters (e.g. beef, lamb, butter, and sugar) will face quotas. But Brussels agreed to remove tariffs on most Australian agricultural products. Australia, in turn, agreed to eliminate tariffs on “almost 100 per cent” of EU goods, including passenger cars, wine, chocolate, and “many processed agricultural products."
The deal also cuts tariffs on nearly all Australian critical minerals and opens up investment opportunities in the sector, reducing, albeit modestly, the EU’s dependence on China. A parallel Australia–EU security and defence partnership, meanwhile, could lead to closer co-operation on joint naval operations, cybersecurity, and AI.
In 2025, Australia–EU merchandise trade hit C$75.2 billion.
EU’s déjà vu
The EU has turbocharged its trade diversification efforts since the return of U.S. President Donald Trump in January 2025. EU–India trade talks trundled along for years until the two sides finalized a deal earlier this year; the EU’s trade deal with the South American trade bloc Mercosur, a quarter-century in the making, will come into effect in May; and last year, the EU and Indonesia finalized a trade and investment agreement.
European Commission President Ursula von der Leyen signed the bloc’s newest agreement alongside Australian Prime Minister Anthony Albanese in Canberra on Tuesday. Von der Leyen’s trip to Australia — her first official visit to the country — is part of a broader strategy to diversify trade and supply chains as the EU’s relations with the U.S. deteriorate and mistrust grows. In January, for example, following Trump’s threats to annex Greenland, the European Parliament delayed the ratification of an EU–U.S. trade deal.
This week, von der Leyen pointedly called Australia a “trusted, like-minded partner.”
Echoes of Davos
The Australia–EU deal speaks to one element of Canadian Prime Minister Carney’s Davos speech: “In a world of great power rivalry, the countries in between have a choice: compete with each other for favour or combine to create a third path with impact.”
This ‘third path,’ in practice, means embracing — as von der Leyen said — “trusted, like-minded" partners to shield trade, investment, and security from unpredictability, accepting compromises to gain stability.
Carney also noted in his Davos speech that Canada is “championing efforts to build a bridge” between the EU and the CPTPP, a 12-member trade deal of mostly Asian economies, of which Canada is a member. Australia, a fellow CPTPP member, could help Canada build such a ‘bridge,’ which would represent a coup for middle powers globally.
Last month, Carney said that “we're not alone in this idea... It’s one of the first conversations I had with the prime ministers of Australia and New Zealand — like-minded countries who see the merits in developing this [partnership].”
