Australia and Germany: Closer than ever following work on our strategic alliance

"Australia and Germany have never been closer", were the words of Prime Minister, Anthony Albanese following discussions with German Chancellor Olaf Scholz that resulted in a raft of agreements which will bolster Australia and Germany's trade, climate, regional security and defence co-operation (Strategic Alliance). Germany is an important trading partner of Australia – with trade between the two countries in 2020-21 equalling A$22.2 billion – and the relationship between Australia and Germany is going from strength to strength, with the countries respective leaders recently acknowledging that Australia and Germany are strategically aligned.

What does the Strategic Alliance entail?

Trade

The ongoing negotiations of the Australia-EU Free Trade Agreement were discussed, with Germany supporting an ambitious agreement that delivers for Australian and German businesses. In particular, there is a desire for Australia to emerge as a renewable energy export superpower, working with countries like Germany, on the industries of the future, with the export of green hydrogen derivatives and critical minerals from Australia to Germany being examples of a strategic trade alliance between the countries.

The Climate Club

In the climate space, Australia will join the likes of the G7 countries, Indonesia, Argentina, Chile, Denmark and Colombia (as well as others) as the newest member of the German initiated "Climate Club", which itself is a year in its infancy.

While details remain light, the Climate Club will provide "a high-ambition intergovernmental forum" geared towards increasing international collaboration on climate change and industrial decarbonisation, and has three broad pillars:

• advancing climate change mitigation policies;
• transforming industries, including the expansion of green industrial products; and
• boosting international climate co-operation and partnerships.

A core feature of the arrangement involves participant countries setting ambitious targets and requiring trading partners to meet the targets set, with import tariffs likely imposed on non-participating countries and participating countries that fail to meet the targets. A taskforce is currently working to further the development of the club towards a full launch in 2023 by COP28 in November later this year.

While the Climate Club's programme of work is still in its development, its initial scope will be "unlocking potential for the decarbonisation of hard-to-abate industrial sectors" which could enable new business opportunities for further Australian and German co-operation – with synergies existing between Australia's rich natural resources and Germany's technological expertise in producing clean energy.

Defence

The defence deal is worth more than A$1 billion – being one of the biggest defence sales in Australia's history – and will see approximately 100 Boxer armoured vehicles being produced in Australia and delivered to Germany from 2025. In addition, an Australian military surveillance aircraft will be deployed to Germany for 6 months from October 2023, along with up to 100 crew and support personnel from Australia. Both defence initiatives demonstrate Australia’s commitment to upholding the rules-based international order.

Potential opportunities for trade and investment

Despite Australia and the European Union's Free Trade Agreement halting, again, until August 2023, the Strategic Alliance between Australia and Germany signals that Australia has its foot in the door for ongoing co-operation on future initiatives and deals.

Relevantly, "enormous opportunities" with respect to the production and transportation of green hydrogen and critical minerals have been raised as part of the Strategic Alliance, with Germany and Australia continuing to explore opportunities for the export of Australian green hydrogen and critical minerals to Germany. For German businesses looking to enter the Australian market, Australia's entry into the Climate Club could also be a way to open conversations and enliven market opportunities in Australia.