From Washington to Beijing, tariffs and trade restrictions are being repurposed as tools of strategic competition, reshaping the global economy in the process. Economic coercion has emerged as one of the most potent tools, blurring the line between legitimate trade disputes and deliberate political punishment. Australia, and the broader global trading community, must sharpen their strategy to defend open markets while hardening national resilience against all forms of coercion.

Economic coercion has become one of China’s preferred instruments of statecraft. Unlike military strategies, coercion through trade restrictions, tariffs or embargoes can be deployed at scale with minimal escalation risk. We saw this in 2020 when Beijing imposed sweeping restrictions on Australian exports in response to Canberra’s call for an independent inquiry into the origins of Covid-19. China calculated that restrictions on barley, wine, coal, lobster and beef would inflict pain on politically influential sectors. The message was blunt: dissent from Beijing’s narrative carried a cost.

China disguises such actions as technical trade disputes, but the intent is political and the outcomes coercive. This isn’t new. Beijing has punished other states for failing to align with its preferences, including cutting off rare earth exports to Japan in 2010 after a maritime dispute, and restricting South Korean tourism and consumer goods in retaliation for Seoul’s deployment of the THAAD missile-defence system. The pattern is clear: Beijing is prepared to distort the rules-based trading system for strategic gain.

But coercion carries costs for the coercer. Scholars of economic statecraft have long argued that coercion creates self-harm, lost markets, higher costs and reputational damage. China’s actions against Australia proved the point. Despite short-term pain, Australian coal found eager buyers in India and Japan; barley shifted to Saudi Arabia; and wine clawed back share in Europe and North America. China, meanwhile, faced higher import costs, disrupted supply chains and reputational damage as a reliable trading partner. By weaponising trade, Beijing accelerated diversification away from its markets.

US President Donald Trump’s use of tariffs adds another layer of complexity.

During his first presidency, Trump imposed tariffs on hundreds of billions of dollars' worth of Chinese goods, justified under Section 301 of the Trade Act. Many of these were framed as transactional trade measures to correct structural imbalances such as forced technology transfer, state subsidies and intellectual property theft. While such blunt instruments disrupted supply chains, they were intended to rebalance trade rather than punish political choices.

Yet coercion has become explicit in his second term. Within weeks of returning to office, Trump used the International Emergency Economic Powers Act to impose tariffs of 25 percent on most Canadian and Mexican goods (10 percent on energy), and 10 percent on Chinese imports. He also reimposed and expanded Section 232 tariffs on steel and aluminium, lifting exemptions for allies such as Australia and Brazil.

By mid-2025, Brazil faced a 50 percent tariff due to domestic political disputes, and India faced the same tariff over its decision to continue importing Russian oil. These were not transactional actions; they were weaponised tariffs designed to force sovereign states to alter political or strategic behaviour. In effect, Washington has joined Beijing in normalising coercive trade practices.

The World Trade Organization (WTO) was built to prevent precisely this sort of abuse. Its rules prohibit discriminatory tariffs and ensure that disputes are resolved through arbitration, not unilateral punishment. Yet the system is under strain. China’s masking of coercion as technical disputes undermines enforcement. And Washington has maintained a block on the WTO Appellate Body appointments, paralysing dispute settlements. Reform efforts led by the European Union, including proposals for an interim appeals mechanism, have faltered without US buy-in. As a result, the WTO is increasingly sidelined in the face of coercion and unilateral trade actions.

This destabilises international supply chains. Exporters can no longer assume that adhering to WTO rules will shield them from arbitrary market closures. Producers must factor in geopolitical risk alongside market demand. The result is fragmentation: supply chains are being rerouted, friend-shoring is gathering momentum, and businesses are diversifying, even at higher cost. Security imperatives are reshaping globalisation as much as market logic.

Australia and its partners must call coercion what it is. Naming and shaming Beijing’s actions was an important first step, but it must be matched with coordinated responses. Canberra’s success in finding alternative markets for wine, barley and coal showed that resilience is possible, but it came at a cost. Other middle powers may not be so fortunate. That is why multilateral mechanisms matter. Initiatives such as the G7’s collective response framework and the EU’s Anti-Coercion Instrument need to be broadened and strengthened.

We must reinvest in the multilateral trading system. The WTO is flawed but abandoning it would concede the field to coercive actors. Reform should focus on restoring dispute settlement, enhancing transparency, and creating mechanisms that explicitly address coercion. A WTO-plus framework anchored by like-minded states may be the only way to restore confidence in global rules.

Diversification is essential. Building independent capability in areas such as energy, digital infrastructure and critical minerals reduces exposure to coercion. For Australia, this means doubling down on trade diversification with South and Southeast Asia, while leveraging our role as a trusted supplier of critical minerals to embed ourselves more deeply into strategic supply chains that are harder to disrupt.

We must also be clear-eyed about power. Economic coercion weaponises trade, targeting industries tied to key constituencies to influence political decision-making. As Beijing and Washington demonstrate their willingness to do that, middle powers such as Australia have no choice but to lead in shaping the next phase of economic statecraft. They should call out coercion wherever it originates, reinforce the rules and invest in resilience so we can prosper in a world where economics is weaponised.