Australia is refocusing on a post-TPP multilateral trade bloc with a Chinese rather than US centrepiece, which could mean potentially painful decisions if tensions over disputed islands in the South China Sea escalate into a confrontation.
Australia is edging closer towards being the meat in the sandwich of a potential future US-China confrontation.
Prime Minister Malcolm Turnbull suggested China could replace the United States in the Trans Pacific Partnership (TPP) trade bloc, hours after the White House vowed to confront Beijing over disputed islands in the South China Sea.
US President Donald Trump earlier signed executive orders to withdraw the United States from the 12-nation TPP, which would have covered 40 per cent of the world's economic output by GDP (gross domestic product).
The Australian Government has confirmed it is trying to salvage a replacement deal that could include China — the world's second biggest economy — instead of the United States.
"Certainly there is the potential for China to join the TPP," Mr Turnbull said.
Trade Minister Steve Ciobo told the ABC the TPP's "original architecture was to enable other countries to join".
Mr Ciobo said he used his recent visit to the World Trade Organisation in Davos to meet with "a long number of countries that are my TPP counterparts".
"Certainly I know Indonesia has expressed a possible interest and there would be scope for China, if we are able to reformulate it, to be a TPP '12 minus one'," he said.
Opposition Leader Bill Shorten repeated his criticism that the Prime Minister had been pointlessly pursuing a long-dead deal.
"Ever since Donald Trump got elected back in November, Mr Turnbull should have realised that the Trans-Pacific Partnership was dead," Mr Shorten said.
The Labor leader, however, agreed Australia should continue to pursue trade deals.
"Of course we need to salvage our trade agreements, and I do think it is important to pursue trade arrangements with nations," Mr Shorten said.
"Many of the nations who were in the Trans-Pacific Partnership have already got agreements with us."
Video: Trying to save the TPP 'the height of delusional absurdity': Shorten (ABC News)
Australia's growing trade commitment to a South-East Asian trade bloc had already been firming with the impending 16-country Regional Comprehensive Economic Partnership (RCEP) that includes China, but excludes the United States.
That could place Australia in a difficult position if the US, Australia's greatest ally, demands full support from Australia in any confrontation with China, Australia's biggest trading partner.
The new Trump administration has already repeated it would challenge China in the South China Sea, despite the importance of trade between the two economic giants.
"I think the US is going to make sure we protect our interests there," White House spokesman Sean Spicer said.
"If those islands are, in fact, in international waters and not part of China proper, yeah, we'll make sure we defend international interests from being taken over by one country."
His comments affirm earlier commitments from new US Secretary of State Rex Tillerson during his confirmation hearing that China's access to the disputed islands "is not going to be allowed".
Vietnam, China, Malaysia have eyes on the prize *
Rich in resources and traversed by a quarter of global shipping, the South China Sea is the stage for several territorial disputes that threaten to escalate tensions in the region.At the heart of these disputes are a series of barren islands in two groups - the Spratly Islands, off the coast of the Philippines, and the Paracel Islands, off the coasts of Vietnam and China. *
Both chains are essentially uninhabitable, but are claimed by no fewer than seven countries, eager to gain control of the vast oil and gas fields below them, as well as some of the region's best fishing grounds.Indonesia, Malaysia and Brunei have made claims to part of the Spratlys based on the internationally recognised Exclusive Economic Zone (EEZ), which extends 200 hundred nautical miles from a country's coastline. *
Based on the EEZ, the Philippines has the strongest claim on the Spratlys and their resources, with its EEZ covering much of the area. However the lure of resources, and prospect of exerting greater control over shipping in the region, means that greater powers are contesting the Philippines' claims. *
China has made extensive sovereignty claims on both the Spratlys and the Paracels to the north, based largely on historic claims outlined in a map from the middle part of the 20th Century known as the 'Nine Dash Map'.Taiwan also makes claims based on the same map, as it was created by the nationalist Kuomintang government, which fled to Taiwan after the communists seized power in China. *
Vietnam also claims the Spratlys and the Paracels as sovereign territory, extending Vietnam's EEZ across much of the region and bringing it into direct conflict with China.There have been deadly protests in Vietnam over China's decision to build an oil rig off the Paracels.One Chinese worker in Vietnam was killed and a dozen injured in riots targeting Chinese and Taiwanese owned factories, prompting 3,000 Chinese nationals to flee the country. *
EEZ can only be imposed based on boundaries of inhabitable land, and this has prompted all the countries making claims on the region to station personnel, and in some cases build military bases out of the water, to bolster their claim.Building and protecting these structures has resulted in a series of stand-offs between countries in the region, each with the potential to escalate.China has been leading the charge with these installations, and has deployed vessels to the region to protect their interests. Chinese coast guard vessels have used a water cannon on Vietnamese vessels, as well as blockading an island where the Philippines has deployed military personnel.