Australians are getting a glimpse into the delicate future of Australia-China relations this week as efforts to stabilise trading ties coincide with a cross-Atlantic fracas over Taiwan and AUKUS.

High-level talks with Chinese officials in Adelaide are being heralded by experts as the latest sign Australia is repairing relations with its largest trading partner after a diplomatic freeze in 2020.

But elsewhere a war of words has broken out between former prime minister Paul Keating and one-time US House Speaker Nancy Pelosi over comments on Taiwan and the contentious AUKUS deal.

It’s a headache for Prime Minister Anthony Albanese, who has sought to defrost the $326 billion-per-year trading relationship with China.

He is also attempting to deepen Australia’s military ties with the US.

That needle is being threaded – at least for now – experts say, with China’s progressive lifting of almost all of its export tariffs on Australian goods showing progress in de-escalation with Beijing.

Australia has managed to repair trade ties with China, but there are longer-term risks associated with AUKUS. Photo: Getty

But there are also risks AUKUS becomes corrosive to bilateral ties, particularly if Washington is able to leverage Canberra into helping contain China in both economic as well as military terms.

“China knows we’re very much a US ally,” says Nick Bisley, a professor in international relations at La Trobe University.

“There’s a careful diplomatic balance Australia has to strike to ensure our security relations with the US remain strong, while also having a stable and positive relationship with [China].”

Australia repairs trade with China

The resumption of high-level dialogue between Australia and China in Adelaide this week shows how different the economic side of the bilateral relationship with Beijing looks now than it did in 2020.

After Albanese visited China in 2023, University of Technology Sydney professor James Laurenceson explained that 2024 has become a year of diplomatic “reciprocation”.

“It’s the restoration of full-scale, two-way dialogue,” he said.

“What they’re trying to do is keep the politics on a stable level – that will allow all the other elements of the relationship to gather steam.”

Those other elements are defined by trade, which is worth hundreds of billions of dollars to the Australian economy each year – much of which comes from iron ore exports that are helping power China’s industrialisation.

Modelling undertaken by Curtin University estimates that China exports are worth $2600 in disposable income to Australian families each year, though that benefit is not evenly distributed.

“Trade with China has a sizeable impact at the household level, through employment generated in that trade,” Curtin research fellow Daniel Kiely said.

The relationship is also paramount to the federal budget, which has been showered in windfall gains from high commodity prices, partly through taxes paid by mining firms exporting to China.

That helps explain why stabilising bilateral trade has been such a high priority for the government.

But Australian National University research fellow Benjamin Herscovitch explains that Beijing also had its own motivations for de-escalating tensions, which ultimately led to repairing relations.

“From Beijing’s point of view, it was imposing trade restrictions and a total diplomatic freeze on Australia and probably judged that treatment was not in China’s interests,” Herscovitch said.

“It was during those years that Australia significantly expanded security relations with the US.”

AUKUS and sovereign control

Australia’s increased role in US efforts to contain China contrasts with the unwinding of trade sanctions, as debate about AUKUS and its implications come to a head this week.

Billions in taxpayer funds will soon flow to the US arms industry under the alliance as criticism is fuelled by revelations this week that the US can back out on the sub deal with just a year’s notice.

It comes just weeks after top brass in Washington suggested subs could even be used around Taiwan, comments that have been cited by Keating in his criticism of AUKUS.

In an interview that has sparked backlash from the highest levels of US government, Keating argued Taiwan is not a “vital” Australian interests, and that more broadly Australia is being roped into an “aggressive” US strategy against China through AUKUS.

“We completely lose our strategic autonomy,” Keating told ABC’s 7.30.

“The right of Australian governments and the Australian people to determine where and how we respond in the world is taken away if we let the United States and its military displace our military and foreign policy prerogatives.”

What the AUKUS deal means for the trajectory of Australia’s bilateral relationship with its largest trading partner remains unclear, Herscovitch said, but the risks are long term.

“The AUKUS plan is a long-term one,” he said.

“If there are issues with AUKUS around the loss of sovereign control or being backed into conflict with China, it’s not something that’s going to play out in the short term.”

Bisley said there’s risk AUKUS draws Australia into conflict with China it would otherwise avoid, but believes the deal itself doesn’t make that significantly more likely than broader US ties do.

He said it’s possible for Australia to prevent AUKUS from being corrosive to trade relations.

“It’s a tricky balance, but lots of countries do it,” Bisley said, referencing how the likes of Japan and South Korea manage their security relationship with the US alongside trade with China.

“Under the Morrison government we had got too far onto one side of the ledger – we had overcooked China as a security threat and had not managed the diplomatic relationship.”

‘US holds all the cards’

Laurenceson doesn’t think Beijing will “blow up” the bilateral relationship over AUKUS as things stand, but that Canberra could be pressured into more aggressive policies under the alliance.

He said the “US holds all the cards” in the way AUKUS is structured, with the potential for Washington to use the fact it can pull out of the subs deal with a year’s notice as leverage.

“I don’t think it’s a fait accompli that if Washington becomes more aggressive towards Beijing then Canberra has to as well,” he said.

“[But] the US has an awful amount of leverage over Australia, because we have no plan B.”

Australia has already faced “modest” pressure from Washington over its increased desire to use security as justification for blocking China out of some high-tech supply chains, Herscovitch said.

That pressure is expected to grow, and AUKUS will likely drive “greater expectation” from the US.

“Right now the US is in the midst of putting together policies which amount to technological and economic containment [of China],” Herscovitch said.

“The US wants its allies and partners involved, because on its own it has less chance of achieving its desired objective.”

This is a key point; because as UNSW associate professor  Weihuan Zhou explains, security considerations spilling over into trade could inflame tensions with Beijing.

“China understands Australia needs to respond to its security interests and that includes its relationship with the US,” he said.

“What actually might bring tension between the bilateral relationship is that if Australia moves beyond that security interest and overplays security considerations in its economic relationship.”

Security expands into trade

Thus far Australia has resisted many US overtures by opposing trade tariffs on China during the Trump and Biden administrations, prioritising its traditional support for international free trade.

But the federal government has also adopted a more hawkish footing on investment, including by blocking Chinese capital from companies mining critical minerals, which has frustrated Beijing.

“We have seen a number of rejections from the Albanese government and we’re likely to see more,” Herscovitch said.

“That’s going to create more and more tension in the relationship.”

Bisley said Australia likes free trade, but is entering a world in which politics is playing a much stronger role in determining how economic relationships between countries are maintained.

He said Canberra could find it harder to balance trade and security if US policies expand from tech like semi conductors and into minerals and other green supply chains – such as electric vehicles – which are bigger industries for Australia.

“The Biden administration has this mantra of wanting to have small gardens with high fences for high-tech stuff, but in a globalised world that’s really hard to do,” Bisley said.

“Australia agrees with that as a security measure, but is pretty uneasy about what that means for broader trade rules.”