Angus Livingston
(Australian Associated Press)

The trade war between Australia’s two most important trading partners is sapping investment confidence and delaying investment decisions, Treasurer Josh Frydenberg says.

The United States and China have been raising tariffs on each other for a year, forcing uncertainty into global markets and affecting Australian businesses.

“There’s no doubt it’s affecting investment confidence already. Capital flows, investment decisions are being deferred,” Mr Frydenberg told the ABC on Monday.

“The growth in trade volumes has slowed quite significantly.”

Mr Frydenberg said for Australia – where one in five jobs relate to trade – it was important to push the case for the rules-based trading system.

He also said Australia would push ahead with new trade deals with Indonesia, the European Union and others to get more than 90 per cent of Australian exports covered by trade agreements.

The United States is Australia’s largest investor, while China is its largest trading partner.

“In the event of trade tensions between China and the US, it’s not just the protagonists who are hurt, it’s all the bystanders as well,” he said.

“Australia’s really caught in the middle.”

Prime Minister Scott Morrison, who is in the US, has struck a deal with President Donald Trump on the export of rare earths, which mainly come from China.

“This is an area where the United States and Australia can work closely together,” Mr Frydenberg said.

“The reason is we want supply chains to be strengthened, we want supply chains to be reliable and we want them to be secure.

“Particularly when the rare earths that you’re talking about are so vital to commerce and technology.”