The Federal Government needs to diversify its trading partners, to protect the nation from an escalating US-China trade war, by finalising several free trade deals, according to the Business Council of Australia.

It needs to "get that trade agreement with India, do more with Europe and do something with the British, post-Brexit, to make our economy more resilient, and less vulnerable to global changes," said the council's chief executive, Jennifer Westacott.

The flow-on effects of the tit-for-tat tariffs are "business uncertainty" and a reluctance to invest in Australia, she said.

Australia's business community is hoping that "cool heads prevail", and that the heated dispute between the world's two biggest economies is "more rhetoric than reality".

"Obviously, business is anxious about where this might end up," Ms Westacott said.

"All we can do … is make sure we don't put barriers in the way of Australian companies being successful and competitive, and we don't put barriers to foreign companies investing in Australia."

Best of both worlds

The European Union is currently experiencing a tense relationship with the UK, as both parties try to finalise a Brexit deal.

But the Australian government's attempts to court both of them with free trade deals are ongoing.

Former foreign minister Julie Bishop had been discussing the potential for a free-trade deal with the UK back in July, if and when it leaves the EU.

"Both governments stand ready to agree a free trade agreement as soon as circumstances allow," she said at the time.

Australia's talks with the EU are, however, at a more advanced stage and the next round of negotiations will be in November.

"An FTA with the EU has the potential to open up a market for Australian goods and services of half a billion people and a GDP of US$17.3 trillion," the Department of Foreign Affairs and Trade said in June.

"It would provide Australian exporters with a competitive edge, and would give Australian businesses access to a larger export market in the EU."

India deal and no political will

Former prime minister Tony Abbott had hoped to sign a Comprehensive Economic Cooperation Agreement with India by the end of 2015.

Jennifer Westacott says the protracted US-China dispute has led to increased business uncertainty. ( Courtesy of The Cranlana Programme )

But two years later, his successor Malcolm Turnbull was less enthusiastic, and conceded it might not be possible to reach a free trade deal with India.

"The fact is that the Indian offers have not been adequate to date," Mr Turnbull said at the time.

"The traditions of protectionism in India run very deep."

But DFAT took a different view to the former prime minister.

"There is no market over the next 20 years which offers more growth opportunities for Australian business than India," DFAT said in a report released in July.

"Australia should set itself the goal by 2035 to lift India into its top three export markets, to make it the third-largest destination in Asia for Australian outward investment."