Shadow treasurer Chris Bowen hopes "sanity prevails" in the escalating trade war between China and the United States, saying the risk to Australia is "material".
Mr Bowen says Australia's high levels of household debt and slim budget surpluses leave the country exposed to major international economic downturns.
The US and China are Australia's biggest trading partners.
"We hope that sanity prevails, that China and the United States sort out their issues," he told reporters in Canberra on Wednesday.
"We shouldn't overstate it - we shouldn't be alarmist - but the downside risk for Australia is material."
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Mr Bowen visited China earlier this month to get Beijing's perspective on the brewing trade tensions.
US president Donald Trump has ratcheted up the simmering stoush by announcing tariffs on $278 billion worth of Chinese goods.
He has threatened to drive the trade stake even deeper if Beijing retaliates.
Accounting giant KPMG estimates the escalation in the US-China trade war could cost the Australian economy at least $36 billion over the next decade, depriving the national economy of 0.3 per cent growth.
The global firm predicts Australia will be far more heavily bruised than the European Union or Japan.
Trade Minister Simon Birmingham has warned Australian consumers will end up paying more as a result of the tariffs.
