Stuck in the Middle: Australia's Impossible Balancing Act with China and the US

Image - Josh Withers

In five years, Australia has signed trade deals with India, Indonesia, the UAE, Peru, Hong Kong and the UK, with a deal with the EU in the final stages of negotiation. Australia in the last decade, under multiple different Prime Ministers, has become a trade deal champion, desperately trying to diversify its partners in response to protectionist broadsides from its largest trading partners, the US and China (FT, "Australia opens trade frontier on its doorstep").

This is the behaviour of a country that is not just stuck between two superpowers, but one that is determined not to choose. This decision has succeeded for five years, but this run will end.

Australia has two distinct dependencies on rival superpowers which pull Canberra in opposite directions. Australia's economy has a deep dependence on China, with China accounting for 24% of Australian trade, compared to 5% with the US, and many of Australia's main industries focused on exporting to China. These raw materials are used by China to fuel its rapid industrial expansion, with over 80% of Australia's iron ore going to China, as well as a healthy portion of coal and gas supplies.

This dependence is unsustainable for Australia and undermines national security. This is clearly seen in 2020 when, after Canberra banned Huawei from its 5G network and called for an independent inquiry into the origins of COVID-19, China retaliated in away that would hurt Australia economically. They hit major Australian exports with tariffs, from lobsters and wine to coal and timber, David Uren of ASPI calling it "assault and coercion," with wine exports to China collapsing by around 78% in volume in two years, effectively closing a market once worth A$1.2 billion (IWSR).

Even though these tariffs were lifted in 2024,they show the economic leverage China has over Australia and how they can punish a country over a domestic political decision. Economically the gravity is all towards China, but in security terms it is in complete opposition. Australia's defence future is staked on a strong alliance with the US, where Canberra has signed security agreements with Washington that directly aim to counter China, with the primary case of AUKUS acting as an opposition to Chinese aggression in the South China Sea. This exemplifies that Canberra is walking on a tightrope where its money points one way and its security points the other. So far it has refused to pick a direction, which is an untenable position in geopolitics.

Australia so far has been able to walk on this tightrope and prosper as a result, despite the 2020 restrictions. In recent years the relationship has recovered from what you would expect to be a permanently frozen state. The current PM, Anthony Albanese, visited China for the second time in July 2025, and Zhao Leji, the Chairman of the Standing Committee of the People's Congress of China, visited Canberra in November of the same year, the highest-level Chinese visit since COVID-19. As stated previously, the 2020 restrictions have been lifted. This economic recovery is deliberate: Canberra's doctrine of the "four Rs" and the "cooperate where we can, differ where we must" line aren't accidents; they're a designed strategy for having both the economy and the alliance at once, with Penny Wong(Australian Foreign Minister) stating the need for a "calm and consistent" partnership. Canberra has managed to maintain this economic stance while still having a deep security tie with the US, with the aforementioned AUKUS deal being agreed in this time frame.

Canberra can no longer walk on the tightrope between China and the US when one geopolitical hotspot comes into the equation: Taiwan.

Even though Canberra has adopted a "One China" policy, it still maintains robust unofficial diplomatic and economic ties and strongly supports the current status quo, and would most likely be drawn into defending Taiwan because of its security dependence on the US. This creates an impossible tightrope for Canberra. In January 2026, China's ambassador Xiao Qian told The Australian that Beijing could use economic tools to punish Australia over Taiwan, saying it is "inadvisable and unacceptable on moral grounds to seek cooperation with and benefits from China while simultaneously disregarding China's concerns and undermining its core interests" (The Diplomat, Wyeth). In plain words: stay out of the Taiwan fight, or the trade you depend on is gone.

This is different from the restrictions Canberra faced in 2020,because Australia survived Chinese coercion by re-routing its exports to non-restrictive countries, finding new partners because the goods were "fungible so we could divert them to other markets" (Shane Oliver, AMP, in FT, "Australia opens trade frontier") such as the US and the UK. However, you cannot find a new market for a decision about whether to back the US in a war. This is not a hypothetical "what if" that Canberra can wishfully avoid. Beijing is committed to unification, with Xi Jinping calling the objective "unstoppable" and refusing to rule out the use of force.

This is a choice that is coming, one Australia has not prepared for and is treating like an essay due in a year's time, constantly pushing it back down the road.

Canberra has "doubled down on alliance management" (UQ News, "Australia needs to get real about Trump's changing America") rather than rethinking its position and committing to a single one. While its participation in AUKUS is still ongoing, its progress is slow and subject to increasing questions over timeframes. Even the security alliance with the US is coming under fire from the Trump government, with a Pentagon review and the watering down of the agreement, on top of increased tariffs on Australian steel and aluminium. Avoiding the choice between China and the US has been Australia's whole strategy, delaying the issue for another day. The tightrope only works until someone shakes the rope. Beijing will eventually cut the rope at its base.