China’s trade war against Australia has shown another side of Beijing’s increasingly assertive diplomacy. While it is deft at using financial inducements to advance its interests and expand its influence, China also knows the power of its economic retaliation and does not hesitate to use it on the global stage. It probably should not come as a shock that Australia, which China’s nationalist tabloid Global Times labelled as “the most unfriendly country besides the United States”, has been targeted by Beijing’s diplomatic and economic sanctions . From China’s perspective, Australia is the weakest link in the US-led “ Quad ” security bloc – also consisting of India and Japan . Amid growing fears about an expanding anti-China coalition in its backyard, Beijing has decided to act to prevent the emergence of an “Indo-Pacific Nato”. Australia is an obvious target, especially when China is already at loggerheads with India and Japan over long-running territorial disputes in the midst of its adversarial rivalry with the US . Although China remains the top trading partner for all the four countries, even after the coronavirus pandemic , Canberra’s economic dependence on Beijing has left it particularly vulnerable to Beijing’s coercive retaliation. Bilateral trade surged to US$159 billion last year and China accounts for about 40 per cent of all exports from Australia, after the signing of a free-trade agreement in late 2015 that lowered Chinese tariffs on its agriculture, dairy products and wine. Canberra has been one of the most vocal critics of Beijing for years, calling out China for challenging rules-based international order, from the South China Sea to Hong Kong and Xinjiang. What’s happened over the last eight months in China-Australia relations? When it became one of the first countries to recognise the 2016 arbitration which rejected Beijing’s historically based claims, China warned that Australia must “carefully talk and cautiously behave”. That turned out to be a turning point in bilateral ties. Australia was also among the first countries to target China’s telecoms giant Huawei Technologies Co, citing national security concerns and moving to clamp down on Beijing’s alleged influence operations with a package of foreign interference laws two year ago. But what invited the wrath of Beijing is Canberra’s leading role in April in calling for an international inquiry into the origins of the coronavirus pandemic , which first broke out in the Chinese city of Wuhan over a year ago. Beijing saw the Covid-19 inquiry as a US-led geopolitical witch hunt specifically aimed at humiliating and isolating China globally. Australia’s move is an unequivocal sign that Canberra is determined to side with Washington in the new cold war with China. On Saturday, Chinese Foreign Minister Wang Yi listed China’s efforts to fight the spread of “political virus” and push back against attempts at scapegoating and blame-shifting as one of the country’s diplomatic accomplishments in 2020. Wang said “justice [is] on our side”. China property developer follows Huawei with job cuts in Australia Australia’s return last month to India’s Malabar naval exercises with the US and Japan after a 13-year lull was probably the last straw. The drills, as well as a slate of Australia’s recent moves to edge closer to Japan and India, were deeply unsettling for Beijing. In response to those active manoeuvres, which China has blamed for its deteriorating diplomatic environment, Beijing has clearly made adjustments to its diplomatic strategy. Yang Jiechi, President Xi Jinping’s top foreign policy aide, admitted two weeks ago that China had moved neighbouring countries up in its hierarchy of relations as it faced an uphill task of managing tensions with the US and a group of middle powers.