The war of words between China and Australia shows no signs of easing as both sides continue to ramp up the rhetoric and the two countries edge closer to a full trade war. But what's behind these moves, and is there hope for bilateral ties between Canberra and Beijing?

Despite the fact that the two Asia-Pacific nations have had a free trade agreement (FTA) in place since 2015, and were both parties to the newly-signed Regional Comprehensive Economic Partnership (RCEP), bilateral relations have reached new lows in recent months, with a wide range of products affected by tariffs.

This has caused particular alarm in Australia, as China is the country's largest trading partner, with the country exporting US$103 billion of goods to China last year - more than a third of its total. 

What's the current situation between China and Australia?

Political tensions have been high between the two countries for a while, and this has spilled over into new tariffs and barriers to trade. In the last six months, China has hit Australian goods including barley, meat and dairy products, timber, coal and cotton with additional duties. 

Among its most recent moves was the imposition of 212 per cent tariffs on Australian wine imports, while it also reportedly blocked imports of coal from the country. 

Earlier this month, Australia accused China of undermining the FTA with these moves. Trade minister Simon Birmingham said: "We continue to raise issues of apparent potential, discriminatory actions targeted against Australia." 

Australian commentators have suggested China is using the spat to send notice to other nations about the potential consequences of acting against Beijing's interests.

Roland Rajah, of the Lowy Institute think-tank, told Nine.com.au: "It seems clear that China's trade belligerence is not going to shift Australian policy. China must surely understand this. So it seems more aimed as a warning to other countries and perhaps also to deter any further actions by Australia that China might not like."

For its part, China has denied these claims, with the country's embassy in Australia insisting Beijing has "actively fulfilled" its obligations under the FTA. It also noted 95 per cent of imported goods from Australia are not subject to any tariffs.

Australia set to lobby WTO

In response to the latest moves, Australia has now confirmed it will be taking its grievances against Chinese trade rules to the World Trade Organization (WTO). Mr Birmingham said bringing in the body to adjudicate was "not perfect", but the country had been left with no choice after attempts to resolve the dispute bilaterally failed.

"We have been a long-standing defender of the international rules-based system, of the importance of multilateral cooperation and engagement," the trade minister continued, adding Australia has "an incredibly strong case to mount" and is confident its producers are not benefiting from unfair subsidies, or 'dumping' goods in global markets.

Mr Birmingham added: "We ask the independent umpire to adjudicate and ultimately help settle those disputes."

What could the future hold for the relationship?

A big test for the relationship will be the scheduled five-year review of the China-Australia FTA this month. In November, the South China Morning Post reported that despite the current tensions, experts considered a full termination of the deal unlikely. However, with the latest moves and Australia's referral to the WTO, this is now far from certain.

Meanwhile, several commentators have noted that a full trade war would do much more harm to Australia than China. According to The Conversation, this would harm Australia's GDP by as much as six per cent, while China's GDP would only suffer by 0.5 per cent.

However, it seems any resolution is still a long way off. The complaint to the WTO is likely to take years to be heard, and neither side has shown interest in making compromises at present.

The future of trade between the nations may well depend on improving overall political ties. To this end, New Zealand's foreign minister Nanaia Mahuta has offered to help mediate a peace deal, suggesting the 2021 Asia Pacific Economic Cooperation summit will be an ideal opportunity for progress.

"Both parties will have to be willing to come together and concede in some areas where they are currently not seeing eye to eye," Ms Mahuta said.