08/02/2017 11:35 AM AEDT | Updated 08/02/2017 8:26 PM AEDT

U.S. And China Will Both Lose In A South China Sea Conflict, And Australia's Staying Out Of it

No one can afford it.

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Chinese Foreign Minister Wang Yi (R) and Australian Foreign Minister Julie Bishop talk after a joint press conference at the Ministry of Foreign Affairs in February last year.

Australia's foreign minister says her country will not take sides in the South China Sea dispute between the U.S. and China, as China's foreign minster warns both sides 'will lose' in a conflict.

Following a meeting with her Chinese counterpart Wang Yi to discuss trade between Australia and China, Julie Bishop told reporters in Canberra that Australia's position on the South China Sea was unchanged.

Yi, on the other hand, took the chance to take an apparent dig at U.S. President Donald Trump's adviser, Steve Bannon, who has said in the past that war between the the U.S. and China was inevitable.

"For any sober-minded politician, they clearly recognise that there cannot be conflict between China and the United States because both will lose -- and both sides cannot afford that," Yi said.

Australian Foreign Minister Julie Bishop pictured here shaking hands with Chinese Foreign Minister Wang Yi during their joint press conference at the Ministry of Foreign Affairs in Beijing in February last year.

Bishop on Tuesday reiterated Australia's long-standing position on the South China Sea -- it's taking no sides -- and the foreign minister reportedly said the government-to-government relationship between Australia and China "could not be stronger".

"We have a strong interest in unimpeded trade and regional peace, freedom of navigation, freedom of overflight and respect for Australia's -- international law. That has been Australia's position and remains our position," Bishop said.

"All activities and any agreements between the claimants must be consistent with international law and that Australia will play our part in seeking to ensure that the international rules-based order is adhered to in the South China Sea and beyond."

Australian diplomats and U.S. senators have been trying limit damage to the countries' strong relationship after Prime Minster Malcolm Turnbull and President Donald Trump had an abrupt phone call last week over a plan to send 1250 refugees to the U.S.

It has been speculated that Trump, no fan of the deal, may ask for something in return from Australia for going through with the refugee arrangement.

Prime Minister Malcolm Turnbull has said Australia is not in debt to the U.S. if the deal goes ahead.

"We assess all requests for military assistance on their merits and there is no linkage at all between an arrangement relating to refugee resettlement and any other matters," he told the Nine Network's 60 Minutes program over the weekend.

Handout . / Reuters
A satellite image released by the Asian Maritime Transparency Initiative at Washington's Center for Strategic and International Studies shows construction of possible radar tower facilities in the Spratly Islands in the disputed South China Sea in this image released on February 23, 2016.

Bannon, in a 2016 interview for his website Brietbart, predicted the U.S. would go to war in the South China Sea "in five to 10 years". Bannon now sits on meetings of the National Security Council.

During his confirmation hearing in January, U.S. Secretary of State Rex Tillerson said China should be blocked from the artificial islands it has built in the region.

"We're going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed," he said.

"They are taking territory or control or declaring control of territories that are not rightfully China's."

In response, former Australian Prime Minister Paul Keating issued a statement accusing Tillerson for warmongering.

"Tillerson's claim that China's control of access to the waters would be a threat to 'the entire global economy' is simply ludicrous," Keating said.

"No country would be more badly affected than China if it moved to impede navigation."

Last week U.S. Defense Secretary James Mattis suggested diplomacy should be the priority in the South China Sea.

Wang on Tuesday had a "suggestion" for his U.S friends.

"Brush up on the history of World War Two," Reuters quoted Wang as saying during a visit to Canberra, Australia.

The 1943 Cairo Declaration and 1945 Potsdam Declaration clearly state that Japan had to return to China all Chinese territory taken by Japan, Wang said.