Five years after trade war with Australia, Beijing wants to ‘join hands’ to resist Trump

China is offering to work with Australia to boost trade and defend growth in response to tariffs imposed by US President Donald Trump in a new bid to find common ground when the world is spiralling into a catastrophic trade war.

The Chinese government is asking Australia to “join hands” with China to defend global trade in response to the American trade barriers – which Trump announced overnight would rise to an unprecedented 125 per cent for China – while blasting Trump for inflicting “sabotage” on international rules.

The Chinese government has urged Australia to join forces to deal with the trade barriers created by Donald Trump.Credit: Nathan Perri

But the diplomatic overture faces major obstacles in Canberra after China imposed an 80 per cent tariff on Australian barley and a 212 per cent tariff on wine in recent years, among other sanctions that exceeded the 10 per cent tariffs Trump imposed on Australia last week.

The message from China is the first of its kind to Australia since the global volatility unleashed by Trump last week. Investors wiped another 1.8 per cent from the ASX 200 on Wednesday – equivalent to about $41 billion.

Australia’s top economic regulators held a crisis meeting on Wednesday to consider how the US tariffs would sap growth in China and slow demand for Australian exports, but Treasurer Jim Chalmers expressed his confidence in continued economic growth.

The turmoil has increased expectations by investors that the Reserve Bank will have to aggressively cut interest rates. Financial markets now expect five rate cuts by Christmas, which would take the cash rate down to 2.85 per cent from its current 4.1 per cent. On a $600,000 mortgage, such deep cuts would slash repayments by almost $500 a month.

China’s ambassador to Australia Xiao Qian said China and Australia should jointly defend the trade system and maintain their “open and cooperative” trade relationship in the face of the US tariffs.

“Under the circumstances, China stands ready to join hands with Australia and the international community to jointly respond to the changes of the world,” he said in a statement to this masthead.

“In the meantime, China is also committed to working with Australia to implement the strategic consensus reached by the leaders of our two countries.”

Xiao said the US had “weaponised” trade issues and that slight changes to the tariff regime would not be enough to avoid the damage to other countries.

“A weak compromise will only allow the US to sabotage the international order and rules even more wantonly, dragging the world economy, which has already embarked on the track of a stable recovery, into a quagmire and an abyss,” he said.

Trade Minister Don Farrell has spoken to counterparts in Japan, South Korea, Singapore and India about the response to the American tariffs amid a growing debate about tightening trade ties with regional neighbours.

Australia’s two-way trade with China has grown from $145.8 billion to $325.5 billion since the two countries struck a free trade agreement a decade ago. Australia’s two-way trade with the US was worth $98.7 billion in 2023.

While the Chinese trade actions against Australia curbed $20 billion in annual exports in recent years, the restrictions have been removed since the last federal election.

Even so, the diplomatic overture comes after the Chinese navy conducted a live-fire exercise in the Tasman Sea while circling the Australian coast, and in the middle of tensions over pledges from Labor and the Coalition to end a Chinese company’s long lease on the Port of Darwin.

Former Liberal trade minister Andrew Robb told this masthead Australia should respond to Trump by seeking closer ties in Asia while former Labor trade minister Craig Emerson said this would be in line with years of Australian policy.

“Our future economic prosperity really lies in the Asian region,” said Emerson, executive chair of the Asia Pacific Economic Cooperation Study Centre at RMIT University.

Farrell declared this week the “stabilisation” of ties with China would be a priority if Labor held government at the election, saying he wanted to see his Chinese counterpart in Shanghai in November.

“The government is clear-eyed about the challenges in our bilateral relationship and the differences that we must manage,” Farrell told an event in Sydney on Tuesday night to mark the anniversary of the trade deal.

“We are committed to navigating our differences wisely while always putting our national interest first.”

At the same time, the federal government is on guard against products being dumped on the Australian market from global suppliers – including Chinese manufacturers – who will redirect their products as they face new barriers to the US market.

Industry Minister Ed Husic said the Australian response included a $1 billion fund to help local manufacturers hurt by the American tariffs.

Husic said he had written to the Anti-Dumping Commission, a federal agency that can levy duties on imports, to consider the prospect of products being dumped below cost on Australia.

Chalmers emerged from the meeting with regulators on Wednesday to declare he was confident Australia could respond to heightened global uncertainty.

“Australia is well-placed and well-prepared to confront extreme uncertainty and volatility in the global economy,” he said.

The meeting of the Council of Financial Regulators, which includes the Reserve Bank, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, was convened by Chalmers after the turmoil caused by Trump’s tariff war.

The ASX 200 lost another 1.8 per cent on Wednesday to be down more than 7 per cent since Trump announced his tariff plan last Thursday. The Australian dollar slipped to a five-year low of US59.1¢ while the price of iron ore, the nation’s most important export commodity, dropped to $US93.35 ($155.11) a tonne.

Chalmers, who has held talks with the head of each major commercial bank this week, will meet with members of the Business Council on Thursday.

Opposition Leader Peter Dutton intensified his attack on Labor over the global economic shock, declaring several times that Chalmers was “talking about a recession” in Australia, even though the government has not said the country was headed for a contraction in growth.

Chalmers rejected Dutton’s claim, saying: “He said that I am predicting a recession. I said exactly the opposite. We expect the Australian economy to continue to grow, and I’ve made that clear.”

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