China remains the largest trading partner for both Australia and New Zealand, but the two countries’ approaches to managing this economically crucial but politically complicated relationship have diverged significantly over the past three years.

Australia’s trade with China has partially recovered from the 2020-2021 lows when Beijing imposed tariffs and import restrictions on Australian barley, wine, coal, and other products. Most of these restrictions have now been lifted following a diplomatic recalibration, but the experience left lasting effects on Australian business strategy and government policy.

The data shows Australian exporters actively diversifying away from China where possible. Wine exports to China remain 60% below their 2019 peak despite the removal of formal barriers, as producers found alternative markets in the UK, US, and Southeast Asia. Barley exports have recovered somewhat but haven’t returned to previous levels as Australian farmers shifted acreage to other crops during the restrictions.

New Zealand avoided the targeted trade restrictions that hit Australia, maintaining relatively stable diplomatic relations even as security concerns about Chinese influence intensified. Kiwi exporters have continued to grow their China presence—dairy exports to China increased 8% in 2024, while seafood exports grew 12%. This commercial success comes with political complexity as New Zealand faces pressure from traditional allies to take stronger positions on issues like Xinjiang and South China Sea territorial disputes.

The contrast in approaches shows clearly in infrastructure decisions. Australia banned Huawei from its 5G network in 2018 and has taken an increasingly restrictive approach to Chinese investment in critical infrastructure. New Zealand initially allowed Huawei limited 5G participation before gradually tightening restrictions under pressure from Five Eyes intelligence partners. The different timelines reflect New Zealand’s attempt to balance security concerns against economic relationships.

Iron ore remains Australia’s largest export to China, with shipments worth more than $100 billion annually. This creates asymmetric dependence—China needs Australian iron ore for steel production, but Australia needs the Chinese market for its mining sector. Neither side can easily replace the other, which provides some stability even as political tensions rise. New Zealand has no equivalent single product creating such mutual dependence.

Education exports to China present different challenges for each country. Australian universities depend heavily on Chinese student fees but have seen enrollment from China drop 15% since 2019 as competition from UK and Canadian universities intensified and COVID-related travel restrictions changed student preferences. New Zealand universities face similar pressures but from a smaller base of Chinese students.

The agricultural sector sees the clearest difference in trajectories. New Zealand’s dairy industry has become deeply integrated into Chinese supply chains, with major processors like Fonterra holding significant investments in Chinese distribution and processing facilities. Australian dairy exports to China are much smaller and agricultural products that compete directly with Chinese domestic production (like beef) face ongoing access challenges.

Technology sector engagement shows another divergence. Australian tech companies, particularly those in defense or cybersecurity, face significant barriers to Chinese market access and are often cautious about Chinese investment due to regulatory scrutiny. New Zealand tech firms, especially in agricultural technology and food processing, have found more receptive markets and partnership opportunities in China.

The political economy within each country shapes these approaches. Australia’s larger economy allows more flexibility to absorb trade disruptions, even painful ones. New Zealand’s smaller economy and heavier dependence on agricultural exports creates stronger incentives to maintain stable relationships. Australian domestic politics features stronger anti-China sentiment, while New Zealand’s political discourse remains more measured.

Looking ahead, both countries face pressure to further reduce strategic dependencies on China, particularly in critical minerals processing and technology supply chains. Australia has moved more aggressively to build domestic processing capacity for lithium and rare earths. New Zealand’s smaller industrial base means it will likely remain more dependent on imported processed materials regardless of source country.

The risk for New Zealand is that its efforts to maintain stable China relations while also meeting security obligations to allies becomes increasingly difficult to sustain. The risk for Australia is that aggressive diversification away from China comes with real economic costs that take years to recoup. Neither country has found an obviously superior approach—they’re managing different trade-offs within different constraints.

For businesses operating across both countries, the divergence creates complexity. A strategy that works for New Zealand market access to China may not be replicable for Australian firms, and vice versa. Companies need to navigate not just Chinese requirements but also increasingly different regulatory and political environments in their home markets.

The broader question is whether this divergence is sustainable. If tensions continue to escalate, will New Zealand be able to maintain its distinct approach, or will pressure from allies force greater alignment with Australia’s position? The answer will significantly impact trade patterns across the entire region.