Treasurer Josh Frydenberg says Australians must prepare to “defend our values” against threats from China amid a new era of competition between the world’s dominant superpowers.

Drawing comparisons with the Cold War in a speech to the Australian National University on Monday, Mr Frydenberg said Australia faces a “new world” as the United States and China clash during the 2020s.

He urged Australian businesses to diversify into new markets to escape “economic coercion” from China.

“Australia is on the front line of this new strategic competition,” he said.

“We have faced increasing pressure to compromise on our core values.”

Mr Frydenberg praised China for opening up its economy in the 1990s – a series of market reforms he said helped lift hundreds of millions of people out of poverty.

But the world’s most populous nation is now adopting “coercive and punitive” measures to hurt Australia, he said.

“Australia will always choose partnerships ahead of conflict whenever we can,” Mr Frydenberg said.

“However, heightened strategic competition is the new reality we must face, now and likely into the future.

“In the new world, economic resilience will be key.”

Mr Frydenberg cited trade data showing exports to China have fallen by $5.4 billion since a series of import restrictions were imposed in 2019.

“They targeted our agricultural and resources sector, with measures affecting a range of our products,” Mr Frydenberg said.

“We have remained steadfast in defending our sovereignty and our core values.

“That does not mean we are anti-China … it means we want all countries to operate by rules that protect our shared interests.”

China has slapped import tariffs on Australian timber, wine, barley, coal, seafood and other products, in a series of tit-for-tat interventions that have cost the local economy billions of dollars.

However, Australian exports to China actually rose in dollar terms over the past year because the price of iron ore rose to record levels.

China sent 14 grievances to Australia last year to explain the fight.

It alleged Australia’s foreign investment laws are hostile and criticised Prime Minister Scott Morrison for his support of an inquiry into the origins of COVID-19.

As iron ore prices begin to fall, Mr Frydenberg says Australia must stand firm to “defend our values” against China’s attacks.

He said Australia has been resilient so far, with $4.4 billion of new exports found to other markets over the past year.

“Australian coal that would have otherwise gone to China has gone to other markets, including India [and] South Korea,” Mr Frydenberg said.

The Treasurer urged Australian businesses to continue diversifying.

“Going forward, businesses also need to be aware that the world has changed and that creates greater uncertainty and risk,” he said.

“They should always be looking to diversify their markets and not overly rely on any one country, essentially adopting a China-plus strategy.”

Economist Saul Eslake said Australia can diversify some of its exports, but believes the government must pick its trade allies carefully.

Former Prime Minister Tony Abbott has championed India as an option, but Mr Eslake said the country is still “highly protectionist”.

“India is almost certainly not going to be the answer,” Mr Eslake said.

Mr Eslake said Australia should instead look to south-east Asian nations, such as our closest neighbour Indonesia and the Philippines.

“The diversification we need is into the markets that, to paraphrase [Paul Keating], we’ve flown over on the way to China,” he said.

Mr Frydenberg’s speech was among the most candid descriptions of worsening relations with China to come from inside federal cabinet.

It comes as Prime Minister Scott Morrison prepares to speak with US President Joe Biden later this year, alongside leaders from India and Japan – two other US allies that have adversarial relations with China.