International economists and market traders are becoming increasingly uneasy with the way global trade is heading.

A trade war between the world's two largest economies is clearly escalating.

Meanwhile, Britain's Prime Minister Theresa May is negotiating an extraordinary political labyrinth in what's being seen as a vain attempt to produce a soft exit from the European Union.

As a mid-sized, highly trade-exposed economy, Australia is very exposed to any downturn in global trade.

However, Australia's Trade Minister Steve Ciobo has downplayed the risk, citing a range of free trade agreements with other partners signed over recent years.

"I'm concerned but I'm not alarmed," he told RN Breakfast.

"This is precisely the reason why the Turnbull Coalition Government has focused very strongly on opening up market opportunities."

Sorry, this audio has expired Australia will continue to pursue new trade deals despite global tensions

Mr Ciobo is currently in London to open discussions around a potential post-Brexit free trade agreement with the UK.

Australia is also in the early stages of free trade negotiations with the European Union.

Brexit uncertainty lingers

The UK is due to leave the European Union — known as Brexit — on March 29 next year.

There's still no agreement on how its final relationship with the bloc will work.

That's partly because there are still deep divisions within the British Government's own ranks.

Pro-EU Conservative MP Anna Soubry gave an impassioned speech during the latest House of Commons debate on Brexit.

"Nobody voted to be poorer," she declared.

"And nobody voted 'leave' on the basis that somebody with a gold-plated pension and inherited wealth would take their job away from them."

Two key Brexit-related bills have been passionately debated.

The first is the Customs Bill, officially known as the taxation or cross-border trade bill.

The second is the Trade Bill, looking to give the UK Government the power to build new trade relationships around the world after it leaves the EU.

Both are attempting to lay the legal framework for post-Brexit international trade.

There has been a lot of pushing and shoving, while Ms May tries to find a middle ground between warring factions of her own party.

Last night the Customs Bill was passed, with several last-minute amendments put forward by "leavers" and accepted by the PM only narrowly voted up in the House of Commons after several pro-EU Conservative MPs crossed the floor to vote against them.

One of the amendments to the Customs Bill, for example, sought to make it illegal for the UK to collect taxes for the EU without the European Union responding in kind.

Sorry, this audio has expired International economists concerned with direction of global trade

Another amendment to ensure the UK is outside of the EU's value added tax (similar to GST) regime also scraped through by three votes.

Other changes to the Customs Bill make sure there's no customs border between Northern Ireland and the rest of the UK.

"There would actually be no hard borders between the UK and Europe, at least from a goods trade perspective," Westpac's global economist, Robert Rennie explained.

"Essentially that is a super-soft Brexit.

"I think that would be a positive for UK manufacturers, and indeed the UK economy as well."

Mr Rennie said that is a much better option for Australia than a "harder" Brexit.

"The big risk is that the UK could be forced to crash out of Europe," he added.

"That would be a very difficult situation [for Australia] as the UK was suddenly forced to re-form trade ties with trading partners around the world.

"The super-soft Brexit would be [positive because it would be] a continuation of the existing situation [for Australia]."

Brief Brexit history

The UK Government's position has changed quite a bit over the past two years.

It first proposed a highly streamlined customs arrangement that came to be known as "max-fac" — short for maximum facilitation.

It aimed to simplify the UK's customs arrangement with the EU.

Under the second proposal, the UK remained a member of the EU's Customs Union, but was also able to pursue its independent trade policy.

Unfortunately there was still a big problem — the physical Irish border.

Given the significant amount of trade between the two countries, without the same rules on both sides of the border, it looked set to be a paperwork nightmare.

Chequers in a game of chess

That's why the Government wanted to establish a free trade area for goods between the UK and the EU with "a common rulebook for all goods including agri-food".

It was dubbed a "third way", and followed a long meeting of cabinet ministers at the Prime Minister's country retreat of Chequers.

That all sounds fine, but several MPs resigned after that Chequers meeting, claiming the Government was sticking too close to the EU.

Here's Ms May explaining her position to BBC journalist Andrew Marr.

Marr: "The problem with the Rule Book — and that's why David Davis, Boris Johnson and, indeed, Donald Trump are so upset with it — is that it doesn't allow us to do new trade deals around the world in the same way." May: "That's wrong. That's wrong. It does allow us to do new trade deals around the rest of the world."

That's a crucial point for Australia.

Implications for Australia and the world

The nature of Brexit is likely to take on more importance for Australia as two of its biggest trading partners ramp up their trade war.

If that trade battle keeps escalating, Australia could be in need of a new and improved free trade deal with the UK.

The landscape has already shifted against Australia.

The economic growth rate of Australia's largest trading partner, China, is slowing.

The latest official figures show Chinese economic growth hit 6.7 per cent in the year to June, its slowest growth rate in 21 months.

And that's before the impact of the trade war with the United States hits home.

The US ramped up trade tensions last week by naming an extra $US200 billion worth of Chinese products that it plans to place tariffs on by September.

More than 6,000 items are likely to face an extra 10 per cent tax — from chemicals, minerals, metals and other industrial imports needed by US businesses, to clothing and accessories, appliances and other consumer goods.

Weird tariff targets Now that the Trump administration is planning to put tariffs on around half of the US imports from China it has had to tax some pretty random goods. Here's ten of the weirdest: Bovine semen

Bovine semen Oxygen and carbon dioxide

Oxygen and carbon dioxide Bidets and lavatory pans

Bidets and lavatory pans Labels and badges

Labels and badges Vinyl tile floor coverings

Vinyl tile floor coverings Knives and crowbars

Knives and crowbars Passenger boarding bridges (for planes)

Passenger boarding bridges (for planes) Farm wagons and carts, not mechanically propelled

Farm wagons and carts, not mechanically propelled Parking meters

Parking meters Time of day recording apparatus

So, all up, the US could impose tariffs on a total of $US250 billion worth of Chinese imports by later this year.

"The US imports around $US500 billion worth of goods from China, so you're looking at tariffs on a little bit more than half of the total value of Chinese imports," United States Studies Centre director Stephen Kirchner said.

"And of course that doesn't include the retaliatory measures other countries are implementing in response to the US tariffs.

"I think we have to be very concerned the trade war is spiralling out of control.

"There are currently no known negotiations taking place between the United States and the countries on which it has imposed tariffs that would see these tariff measures repealed."

With no resolution clearly in sight, Mr Kirchner said the trade war could have severe fallout.

"In terms of its seriousness, I think it's right up there with the tariffs we saw introduced in the 1930s, which saw a two-thirds decline in world trade and exacerbated the Great Depression," he warned.

So as global trade looks ever more uncertain, for Australia the final shape of Brexit has added importance.