In recent days global stock markets have become increasingly volatile as they have become much more uncertain about the likely outcome of the US/China trade war, the risk of accelerating global inflation, and the sustainability of US/global growth, being buffeted by a range of geo-political tensions.

The US/China trade deficit hasn’t improved noticeably as yet, although specific tariffs are starting to impact on specific products and industries. As the prospect of a “deal” between the US and China in the near term seems unlikely, we can expect the economic consequences of an accelerating war to accumulate. We are vulnerable to the fallout from this as well as China’s decision to put a freeze on coal imports until some time in 2019.

Growth in both China and the US is slowing. A sustained trade war will impact significantly on Chinese growth and the Chinese authorities have been showing real concern in recent days attempting to “cushion” the impact, and depreciating their currency, although they can’t push this too far as “evidence of currency manipulation” would give the US further justification to increase tariffs. US growth is slowing as the effects of Trump’s “sugar hit” from his tax cuts and some infrastructure and defence spending are beginning to wane, and the Federal Reserve pushes up official interest rates. How this will unfold is now also complicated by the Democrats winning control of the lower house recently at the mid-term elections that will see Trump held to account on many fronts, and basically unable to count on Congressional support for any of his legislative agenda.

I suspect Congress will cut up rough on Trump through 2019, and I fear that 2020, a Presidential election year, will be a particularly tough one for Trump and the US, with the US economy perhaps even falling into a recession. The risk of another global financial shake out in the meantime is very real, with many “bubbles” in stock, bond and property markets, and a significant “debt overhang”, especially in some emerging and European economies, including China.

Australia is totally unprepared for all this, especially with Morrison’s “Fair Dinkum, She’ll be Right” attitude whereby he just simply ignores the significance of economic risks and challenges, throwing a slogan here and there when questioned. Labor treasury spokesman Bowen this week gave some acknowledgement of our vulnerability, but offered little policy assurance.

Even though our budget seems to be moving back to surplus more quickly that predicted, this is due to an unsustainable increase in tax collections. Both sides have made very significant commitments to increased expenditure through the 2020s in education, health, NDIS, defence, and infrastructure, all unfunded, while promising “lower taxes” and significant budget surpluses. It simply doesn’t add up!

Moreover, the RBA has very limited capacity to assist given our alarming household debt level, among the highest in the world. This situation is being compounded by falling house prices, rising mortgage rates (as the banks seek to recover their rising cost of funds driven by global credit conditions), and as the banks restrict credit in response to the Royal Commission.

The rising costs of living (the dominant political issue) are being essentially ignored. Both sides are merely offering limited personal tax relief, rather than policies to directly contain these cost increases. Households have been running up their debt, and running down their savings, just to make ends meet as power, housing, health and other costs continue to increase.

The bigger structural challenges in ageing and aged care, climate, low productivity, and the like, are just being kicked down the road.

The Morrison government just hopes to “hang on” until the next election, and the ALP doesn’t want to say or do too much that might compromise its chances of winning.

Again it is short-term politics that is dominating our government processes and putting our economic future at risk.

John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.