A ship loads cargo in east China's Jiangsu Province (Image: Sipa USA/Costfoto/Wang Chun)

Australia and China’s relationship is deteriorating rapidly.

And it’s a costly fight: economists argue that an all-out trade war with China would cost Australia 6% of our GDP.

So what do we do next? Looking for answers, we spoke to three experts and while they differ on what the Australian government’s next steps should be, they all agree the ball is in China’s court. 

We’re dealing with a superpower

Jane Golley, director at the Australian National University’s Australian Centre on China in the World, told Crikey Australia needed to consider the power imbalance when making next steps. 

“We don’t want to look weak and yet surely there is a time to tread softly, speak quietly, use diplomatic channels rather than the Murdoch press and make more nuanced points about our differences while also trying harder to find common ground,” Golley said.

Australia standing up to China and, as Golley says, “poking the bully” would only serve a domestic nationalistic ideology.

“[The idea that] we have to continually stand up to China, and that we now need our government to protect us from ‘the enemy’ just doesn’t make sense to me,” Golley said. “What is the endpoint of this strategy? A cold war? A hot war?”

She added Australia needed to pick its battles and a tweet was not the place to start. Australia has criticised China’s human rights abuses — rightfully, Golley said — so it shouldn’t be a surprise that China does the same. 

“Demanding an apology is unlikely to work on China, and it almost certainly won’t elicit a change in their behaviour,” she said. “There must be a better way.”

We can only diversify so much 

UTS Australia-China Relations Institute director Professor James Laurenceson told Crikey businesses had to prepare for a volatile trade market. 

“Every Australian business from exposure from China needs a risk mitigation plan,” he said. “In barley or beef, we need diversification to other markets.”

But, he added, diversification simply isn’t an option in some sectors like universities like education. He doesn’t think more tariffs are likely in the next few weeks because Australia will keep taking its case to the World Trade Organization. 

“I don’t think the Australian government has the primary responsibility for making the next step happen,” he said. “They’ve been pretty clear they do want to talk.”

Yesterday, Morrison said he wanted China’s apology for the tweet to serve as a reset for the two countries’ relationships. 

“We can avoid getting into the mud with them. That doesn’t help Australia and will only worsen the atmospherics,” he said. 

Don’t bow to ‘outrageous’ demands 

Charles Sturt University expert on Chinese Communist Party foreign interference Professor Clive Hamilton told Crikey the post was China’s latest attempt to put pressure on Australia to bow to its demands.

In November, the Chinese embassy outlined 14 grievances with Australia, ranging from government funding for “anti-China” research at the Australian Strategic Policy Institute to raids on Chinese journalists and academic visa cancellations and blocking 10 Chinese foreign investment deals across infrastructure, agriculture and animal husbandry sectors.

Hamilton said China would likely implement more economic penalties on Australia. 

“Beijing is acting in a … strategic way to constantly amplify pressure on Australia to cave in,” he said. 

“At the same time, they’re also sending a very strong message to other nations that if you stand in the way of Beijing’s demands, then you can expect to suffer seriously as a result.” 

Hamilton said while Australia should diversify its business interests with China and reduce trade reliance, there was little the government could do. 

“Beijing has decided to punish Australia … We can either capitulate to Beijing’s outrageous demands, or we can dig in for the long haul and attempt to reduce the ability of Beijing to exercise economic power over us.”