Australian farmers had already held fears of getting caught in the middle of the spat as China earlier threatened to hit Australian barley exports with tariffs that could rip hundreds of millions of dollars from trade, the nation's national broadcaster ABC reported.
Australia's Trade Minister Simon Birmingham said the tariff threat was deeply concerning and had "no justification".
He said the Government was working with the Australian grains industry to mount the strongest possible case against China's 18-month anti-dumping investigation.
"Every country has a right to apply tariffs in relation to matters of dumping," Senator Birmingham told reporters in Canberra on Sunday.
"But we are quite clear and firm in our view that there is no justification to find that Australia's farmers and barley producers are subsidised or are dumping their product in such ways."
Former Nationals leader Barnaby Joyce said the threat was retribution for Australia supporting a review of Covid-19's origins.
"This is a case of payback," he told Seven Network's Sunrise on Monday, adding that the coronavirus investigation was justified.
The rising tensions will be watched closely across the Tasman in New Zealand.
Foreign Minister Winston Peters recently spoke out in support of Taiwan joining the World Health Organisation because of its remarkable handling of the Covid-19 outbreak.
But his comments drew a stern rebuke from China, which urged New Zealand to "stop making wrong statements" on Taiwan or risk damaging the two nations' relationship.
"China urges New Zealand to strictly abide by the 'one China' principle and immediately stop making wrong statements on Taiwan, to avoid damaging our bilateral relationship," Chinese Foreign Ministry spokesman Zhao Lijian said.
China is also the biggest importer of Kiwi meat in both volume and dollar value.
In March, the monthly value of New Zealand red meat and co-product exports topped $1 billion for the first time, according to an analysis by the Meat Industry Association.
Total exports hit $1.1b for the month, an increase of 12 per cent on March 2019.
Federated Farmers Meat & Wool Industry Group chairman Miles Anderson said his members would keep a close eye on the situation between Australia and China.
"Anything that is in violation of the trade agreements that have been worked out with the WTO are a concern to us," he said.
"As a trading nation we rely on overseas trade - much like Australia does - for a big portion of our income and we hope this dispute is settled amicably and as quick as possible."
Anderson said a few years back Kiwi exporters had a similar situation when they changed the way they prepared the paperwork on their exports and this led to Chinese officials rejecting the exports.
"It was just a technicality but there was a bit of time needed to work through that with officials in China - I guess the border control had been used to one form of paperwork and when it changed they were suspicious or concerned."
"So hopefully it is something similar to that."
The Morrison Government has been calling for an inquiry into the origin of Covid-19 for some weeks to better understand how the virus started in Wuhan, China to be able to counter such pandemics in the future.
Health Minister Greg Hunt said Australia backed a European Union motion for an independent investigation.
"We support the EU motion which includes an independent investigation, regulatory work on wet markets and also the potential for independent inspection powers," Hunt told Sky News.
However, earlier in the month, Beijing lashed out at Aussie PM Scott Morrison, saying he deserved "a slap in the face" for trying to blame the Covid-19 pandemic on the communist state.
Federal Labor said the Australian government must show leadership on managing this important relationship at this difficult time.
"We are getting a taste now of what it is like when we mismanage our relationship with our largest trading partner. This issue of barley goes back 18 months; it predates Covid-19," the opposition's agriculture spokesman Joel Fitzgibbon told Sunrise.
- with news.com.au
