A spot of ‘good’ trade news as the EU and Australia concluded eight years of negotiations and agreed a trade pact worth the equivalent of £5bn.
Oil prices spiked once more in response to differing accounts of progress towards an end to the US-Iran conflict.
That economic setback provides the backdrop to UK chancellor Rachel Reeves' upcoming statement on how she plans to limit the economic fallout from the war.
EU-Australia deal completed
The EU has concluded another trade agreement in its bid to limit reliance on the US and China amid increasing global volatility and geopolitical tensions.
Negotiations that begun eight years ago ended today (24 March), with £5.2bn worth of tariff savings agreed.
Drawing attention to the pact’s strategic value, European Commission President Ursula von der Leyen, who travelled to Australia to sign the deal, said that it builds “collective resilience”, in “a world where great powers are using tariffs as leverage and supply chains as vulnerabilities to be exploited”.
Australian prime minister Anthony Albanese described the deal as a “win-win”, and added that “both the EU and Australia are asserting that we believe in free trade”.
The free trade agreement will give the EU access to Australia’s vast reserves of critical minerals – required in the manufacturing of key technology and defence goods – while the EU will remove and reduce tariffs on Australian agricultural goods imported into Europe.
Cooperation between Australia and the EU on seven critical mineral projects, including lithium and tungsten, was announced as part of the deal, as was a security and defence partnership that also spans counter terrorism, maritime security and space.
Australian firms will also be granted access to the EU’s €150bn defence pact: Safe. The UK has been seeking access since Safe was announced last year, with setbacks arising from disputes over UK financial contributions.
Agri-tensions
The final stage of negotiations was to iron out the agricultural terms. Australian farmers will face no tariffs on 25,000 tonnes of lamb, goat meat, fruit, vegetables, seafood, and some dairy and sugar products.
Australia agreed to reduced-tariff exports to the bloc on 30,600 tonnes of beef – rather than its preferred 50,000 – with half of that volume being tariff-free and the other half subject to a 7.5% levy.
Meat and Livestock Australia’s Andrew McDonald, described the lower tariff-free quota as a “missed opportunity for Australia's red meat producers, processors and exporters”.
McDonald said his country’s “red meat sector has been profoundly let down by this outcome,” alleging it was below the level of access was that New Zealand had managed to negotiate with the EU.
However, there’s been opposition to the deal from EU farmers, who were already frustrated by Brussel’s deal with South American trade bloc Mercosur, concluded at the end of last year.
Oil prices spike
The price of oil has yo-yoed in response to conflicting news about a possible deescalation in the Middle East.
Brent crude, a key benchmark for international oil prices, fell more than 10% yesterday (23 March) after Trump delayed his threat to strike Iranian power plants following so-called “productive” talks with Iran.
It returned to over US$100 per barrel today in response to Iranian counter-claims that no such talks took place. Tehran has suggested Trump’s social media post to this effect was sent in order to manipulate markets.
A pattern has emerged in which a high level of profitable oil trades have taken place in the minutes prior to announcements about US military action both in both Iran and Venezuela. The FT reports that bets worth half a billion dollars were placed in the 15 minutes before Trump’s post about talks with Iran.
One US broker anonymously told the publication that although “it’s hard to prove causality… you have to wonder who would have been relatively aggressive at selling futures at that point, 15 minutes before Trump’s post”.
Reeves attempts to reassure
Amid the energy price rises and further economic fallout from the Middle East war, which saw an emergency Cobra meeting convened yesterday, Reeves will deliver a statement later today setting out economic proposals to address the crisis.
The BBC reports that the statement is likely to cover three areas: empowering the Competition and Markets Authority to prevent profiteering by energy companies, bring forward plans to develop the UK’s nuclear power capacity and commit to supporting the most vulnerable with the cost of rising energy bills.
There are concerns about the increased government spending needed to cover financial support. The Conservative government spent an estimated £40bn to provide universal support for businesses and households in 2022, when Russia invaded Ukraine.
This blanket approach has since been criticised for damaging public finances, and its anticipated that Reeves will commit to a more targeted approach to help those least able to afford the increase in today’s statement.
The current energy price cap set by regulator Ofgem will remain in place until the end of July, allowing time for the government to formulate such a targeted approach. However, estimates of how much energy bill could increase have reached £330 per year, according to some analysts.
Spiraling energy costs is also bad news for UK industry. Manufacturers were already contending with the highest energy input prices in Europe, but the S&P Global Flash Purchasing Mangers’ Index – released today – found that business confidence was down in response to what it termed the highest inflationary surge for 30 years.
Elsewhere in the headlines
- UK trade minister Sir Chris Bryant is in Cameroon for this week’s World Trade Organization ministerial conference
- The Department for Business and Trade (DBT) has announced sweeping powers for the Small Business Commissioner to investigate poor payment practices for SMEs, as DBT cracks down on the “abuse” of late payments by larger companies
- The US is cracking down on tech imports for what it calls security concerns, with “foreign-made” routers for consumers now banned
Yesterday in Trade
- Trump delayed strikes on Iranian power plants after so-called “productive” talks with officials
- Emergency Cobra meeting of UK ministers and experts to evaluate economic fallout from Iran crisis
- UK movement on providing greater military support to Strait of Hormuz after Iran attempted strikes on Diego Garcia base over the weekend
You can read those stories and others here.
