China is threatening to slap major tariffs on Australian barley in a move that could cost grain exporters hundreds of millions of dollars.
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The threat is the latest escalation in an increasingly bitter diplomatic row over Australia's calls for a global inquiry into the origins of coronavirus.
China has publicly threatened to impose economic sanctions on Australia in retaliation to the investigation.
Barley farmers could be the first victims if Beijing makes good on its threat.
Prime Minister Scott Morrison said China had not linked barley tariffs to the COVID-19 inquiry or anything else.
Mr Morrison said it would be "extremely disappointing" if tariffs were used as an act of retribution.
"They certainly haven't raised it as connected to other issues. I would be extremely disappointed if it was," he told reporters in Canberra on Monday.
"There's no reason for me to think based on the way that they're approaching it that I could draw that conclusion."
Barley is Australia's second most valuable agricultural export to China, with the trade worth $1.5 billion.
China is due to conclude an 18-month anti-dumping investigation into Australian barley by May 19.
"We contest quite clearly that we do not subsidise and we have not dumped barley into China," Agriculture Minister David Littleproud told ABC radio.
"We expect to be able to demonstrate that to Chinese officials and have been trying to do that for some 18 months and will continue to work with them."
Australia is prepared to take China to the World Trade Organisation to fight against the tariffs.
"That's what the umpire is there for and that's what we would test if we feel aggrieved that our position hasn't been properly accepted or understood," Mr Littleproud said.
Former Nationals Leader Barnaby Joyce is in no doubt about the reasons behind the tariff threat.
"This is a case of payback," he told the Seven Network.
Labor's agriculture spokesman Joel Fitzgibbon said the government needed to get the matter under control.
"We are getting a taste now of what it is like when we mismanage our relationship with our largest trading partner. This issue of barley goes back 18 months, it predates COVID-19," Mr Fitzgibbon said.
"This is what happens when you put populist policies in place, making big statements, beating your chest without thinking about potential economic consequences for Australia, and also our farmers."
Australia has vowed to support a European Union motion for an independent investigation into the coronavirus.
But as the brewing barley battle proves, such an examination could decimate relations with Australia's number one trading partner.
Australian Associated Press
