The White House is considering harsh penalties against China for stealing IP from American corporations and forcing the transfer of technology in exchange for limited market access to Asia's largest market.

US media reports in recent days have said President Trump is considering additional tariffs of $US30-60 billion under an unprecedented retaliation for China's well-documented IP abuses.

President Trump this month unveiled tariffs of 25 per cent and 10 per cent on foreign steel and aluminium, protectionism that indirectly tried to target China's flooding of global steel markets.

The Turnbull government has trodden a careful path in encouraging China's leaders to open up and reform its economy, while largely avoiding direct confrontation on backing up President Trump's economic grievances with Beijing.

Larry Kudlow: "China has not played by the rules for a long time." RICHARD DREW

Administration officials including US Trade Representative (USTR) Robert Lighthizer and Commerce Secretary Wilbur Ross have told foreign counterparts that tariffs on imports have become a last resort because China's mercantilist practices have not changed.

Institute of International Finance economist Lucas Martin said the "risk of a fragmenting international trading system" would be high on the list of concern for policymakers at the G20 meeting of finance ministers and central bank governors in Buenos Aires on Tuesday and Wednesday.

The European Commission has threatened to impose tariffs on politically-sensitive goods such as American Harley-Davidsons and Kentucky bourbon if President Trump does not exempt the continent from the metals tariffs.


Before flying out to the G20, Mr Morrison said: "Australia does not back away from our position on free and open trade."

The European Commission has threatened to impose tariffs on politically-sensitive goods such as Harley-Davidsons President Trump does not exempt the continent from the metals tariffs. KEITH SRAKOCIC

Ahead of the G20, German Chancellor Angela Merkel and Chinese President Xi Jinping at the weekend agreed to address global steel overcapacity.

The Wall Street Journal reported last week that some US allies, such as from Europe, have expressed a willingness to join together to pressure China to cut its global metals glut.

The offer is part of an effort to avoid being hit with US tariffs on steel and aluminium.

A USTR spokesman declined to comment.

Prime Minister Malcolm Turnbull has insisted Australia offered the US no concession to be carved out from the metal tariffs.

Trade and Investment Minister Steve Ciobo said in a speech on Monday that "all the major powers" should work within the World Trade Organisation rules and that WTO agenda needs to be refreshed.


Australia was working proactively with China to strengthen protection of IP rights for Australian businesses, Mr Ciobo said.

Australia has joined the US in moving to overhaul the rules for global digital trade.

US technology companies such as Google and Facebook have found it difficult to operate in China and in Europe are also facing regulatory blowback on tax, data storage and competition issues.

It remains unclear how far the Turnbull government is prepared to go in pressing China to open up more to help placate the Trump administration and avoid a tit-for-tat trade war.

Australia has generally taken a more under-the-radar, bilateral approach with China, rather than more confrontational multilateral pressure.

Writing in The Australian Financial Review last month, former Australian government trade official Joshua Meltzer and former national security adviser Andrew Shearer, said Australia too often had "ducked for cover" from joining other countries such as the US in challenging China's trade and investment restrictions at the World Trade Organisation.

"Its best hope of shaping the future rules governing trade – and nudging the Trump administration away from harmful unilateral trade actions – is to step up and work more closely with like-minded countries, even when it sometimes means irritating China," they wrote.

The European Union and the US are opposing China's application to be recognised as a market-economy at the WTO.

Australia is a neutral observer in the case, after already granting China market status under the 2015 China-Australia Free Trade Agreement.

The existing Global Forum on Steel Excess Capacity has been ineffective in cutting China's state-subsidised overproduction that has depressed prices around the world.

The Trump administration also takes a dim view of the WTO's seeming inability to tackle China.