Australia has been urged to take China to the global trade umpire over coal export bans to reduce the chance of iron ore being used as a pawn in a bitter diplomatic dispute.
The Australian Strategic Policy Institute released a report on Wednesday exploring the future of iron ore exports to China.
"In the event that an iron ore glut emerges over coming years, Australian miners could be susceptible to the same kind of discriminatory action that China has taken against Australian coal," it says.
"Australia could make it more difficult for China to take such a step by taking action now against China over its ban on Australian coal."
Report author David Uren argues World Trade Organisation rules being flouted by China are Australia's best and only defence.
"While Australia must choose its fights, there's a strong case for the government to advance a complaint on coal," he says.
"It doesn't involve a formal tariff but is pure discrimination against a single supplier nation.
"Importantly, success before the WTO in a case over coal could act as a precedent for any similar discrimination against Australian iron ore."
ASPI also warned against imposing a levy on iron ore sales to China to compensate for losses from punitive trade barriers, as suggested by government backbencher Matt Canavan.
The report says the move would make China move determined to punish Australia through finding alternative iron ore supplies.
Australia has taken China to the WTO over tariffs on barley and wine.
Global markets are showing anxiety over the potential collapse of debt-ridden Chinese property giant Evergrande.
Prime Minister Scott Morrison last week hosed down fears the company's collapse could trigger a global financial crisis.
But ASPI's report notes far-reaching consequences for the Chinese real estate market, which is the biggest single user of iron ore.
"The Evergrande financial implosion bears similarities to the US sub-prime crisis with the accumulation of property-related bad debts and losses having the potential to spark a loss of confidence in the financial system."
It found China is determined to reduce dependence on Australian iron ore through capping steel production and seeking alternative supplies.
But local governments have hampered those efforts.
Since Australia's May budget, the iron ore price has struck a record high of about $US230 per tonne, but has since collapsed to below $US100 per tonne.
Australian Associated Press