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China’s response to Donald Trump’s trade war places Australia in the middle of a bitter rivalry, choosing between the country’s firmest ally and its largest trade partner. By Emily Barrett.
Australia caught in the middle of caustic US–China rivalry
As the United States trade war rages on, the Australian government in caretaker mode can’t escape questions about how it is approaching relations with our closest ally. A government spokesperson told The Saturday Paper, “We will cooperate when we can, disagree when we must and engage in our national interest.”
That framing of relations with the US is identical to the language the government uses when referring to China. This is a significant and fitting shift.
Australia is now caught in a bitter rivalry between these two superpowers on which we depend too much: for our national security and for our economic wellbeing, respectively. These two spheres were always set to clash, and that point appeared to draw closer this week.
Reports emerged that the White House intends to pressure countries seeking tariff exemptions to curb their trade with China. That’s even as the US president flagged he’s considering cutting the 145 per cent rate on the country – yet another backdown in his on-again, off-again tariff regime.
China’s commerce ministry is now promising “resolute and reciprocal” measures against “any party reaching a deal at the expense of China’s interests”. The Korea Economic Daily has reported some domestic companies have received letters from the Chinese government warning them against exporting products containing Chinese critical minerals to US military contractors.
Coercion of this kind is not unprecedented for an American government. Jenny Gordon, a former chief economist for the Department of Foreign Affairs and Trade and a nonresident fellow at the Lowy Institute, points out that the Biden administration applied pressure on allies such as the Dutch government to curb sales of semiconductor technology to China. “And if you go back to Obama,” she says, “the trans-Pacific trade partnership that they were trying to negotiate actually deliberately excluded China.”
Gordon is concerned, however, that the dramatic escalation under the Trump administration has unravelled successful pacts and will damage global trade and growth if countries rush into deals with the US. A united front for mutual benefit is needed, she says, since “what’s individually rational in this situation is not collectively rational”.
It’s unlikely that Australia would compromise on its China ties in concessions to the US, mainly because China is our largest trading partner, with business worth $325 billion annually, accounting for more than a quarter of our global trade. The US’s two-way trade with Australia was just $100 billion in 2023, though it is by far the largest investor in this country, at $1.2 trillion that year.
“The Albanese government will always stand up for Australia,” the government spokesperson said this week. “Just as we advocated for China to lift $20 billion of trade impediments without compromising on our broader interests.”
This goes beyond pragmatism, to the principle, says Merriden Varrall, who leads the Australia Geopolitics Hub at KPMG and was based in China as a United Nations diplomat. “Australia stood very firm when China imposed various trade restrictions on it over the past few years,” she says. “There’s a real point being made that we will not be pushed around on our trade decisions.”
Australian Defence Minister Richard Marles pointedly rejected the Chinese ambassador’s overture this month to “join hands” with Beijing to defend the global trading system. “We are not doing that,” Marles responded on Sky News. “What we are doing is pursuing Australia’s national interests and diversifying our trade around the world.”
He named the European Union, Indonesia, India, Britain and the Middle East as targets for Australia to strengthen trade ties.
Indeed, following the April 2 “liberation day”, when the US president announced a 10 per cent tariff on Australian imports, and higher rates on some 60 other countries, Trade Minister Don Farrell joined a call with the EU commissioner for trade and economic security.
The video-link meeting, described later by Farrell as “warm and constructive”, revisited free trade talks that had stalled in 2023 over European restrictions on Australian agricultural exports. It ended with a pledge to regroup after the Australian election.
In the meantime, the main threat to Australia’s economy is not direct tariffs on Australian products but a global downturn that saps demand for exports. The International Monetary Fund’s latest Global Financial Stability Report expects that the tariffs will “significantly slow” growth in the world’s major economies, and particularly that of the US. Australia’s growth for this year has been revised down to 1.6 per cent, from the 2.1 per cent forecast in January. The IMF has also ratcheted up its global inflation outlook.
“There are reasons to be pessimistic about the US economy but more optimistic about the rest of the world,” says Justin Wolfers, a professor at the University of Michigan and a Brookings Institution senior fellow.
“The case for pessimism in the US is not just trade related … The White House is screwing everything up, and so: if you don’t like our tariffs, wait until you see our regulations; if you don’t like our regulations, see who’s running the defence department. You can see how this might be a miserable place to do business.”
The backdown on China’s tariffs on Wednesday came a day after executives from top retailers Walmart, Target and Home Depot met with President Donald Trump to warn him of the risk of empty store shelves as import taxes interfered with supply chains and raised prices.
That alarm among America’s largest corporations is one reason that Wolfers, an Australian now resident in the US, laughs off Opposition Leader Peter Dutton’s claims that he would have managed to get the US president on the phone to negotiate a better deal for Australia.
“Every CEO – of Walmart, of Intel, of Microsoft – is trying to call the White House ... The idea that Dutton could get through to the operator right now is absurd.”
This feedback is indicative of how chaotic policy damages investment, says Jenny Gordon. “Uncertainty has an absolute chilling effect on companies … If Trump really was attracting a bunch of investment to the US, he’d be having a stronger US dollar, not a falling US dollar.”
Uncertainty is a problem for Australian businesses, too. Australia’s three mining giants – Rio Tinto, BHP and Fortescue – have all made public statements on the tariffs that amount to “wait and see”. Each has significant exposure to a drop in demand from our largest trading partner, as supplying Australian iron ore to China is a major part of their businesses and is not easily redirected. High iron ore prices contributed substantially to Australia’s back-to-back budget surpluses.
The next growth market is India, with increasing demand for metallurgical coal, but its steelmaking capacity is a fraction of China’s. Fortescue founder and chairman Andrew Forrest, who’s watched the company’s share price sink 25 per cent from its peak this year in February, has said China can withstand the blows of the trade war.
However, BHP and Rio have their own benefits to reap from the Trump administration, which may support the bilateral relationship between the US and Australia, even if it does little for the Australian economy. Their planned joint venture on a copper mining project in Arizona promises to supply up to a quarter of the US’s domestic demand for the next four decades.
That Resolution Copper project has been held up for decades, in part over opposition from local Indigenous groups. This week, the Trump administration announced that the project’s approval will be expedited. Its future still depends on a decision by the Supreme Court.
The prime minister has mentioned Australia’s abundant critical minerals as a potential asset in negotiations with the US. These resources are key to Australia’s vision of a much-needed diversification away from iron ore and fossil fuel exports, which have been declining in value over time, to cater to the global green transition. This will require a rethinking of the shape of Australia’s economy, says Jenny Gordon, as “the margins on critical minerals are much smaller than the margins on things like iron ore and coal”.
For the next week, then, the Australian election campaign will roll on, with the rules of international diplomacy allowing no direct discussion of the massive transition in the world order that appears to be under way. It’s hard to tell whether either of the competing visions for Australia’s future can accommodate what comes next, let alone succeed.
For Merriden Varrall, the most important message is that no amount of patience with the erratic policymaking in the US will correct what she describes as Trump’s “siege mentality”. Nor can it avert what looks like the end, if not of a free trade era then of the rules-based order that has served the world since World War II.
“We just really need to be thinking about how we’re going to navigate and negotiate this, and not be so naive as to be working on a policy of hope that it’s all going to be okay, and that the fever in Washington will abate and everything will go back to normal,” she says.
“The Thucydides quote – that the strong will do what they can and the weak will suffer what they must – that’s the sort of thing that we’re looking at now.”
This article was first published in the print edition of The Saturday Paper on April 26, 2025 as "Superpower play".
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