Paul Keating warns Australia's greatest challenge will be determined by how the relationship between China and the United States plays out over the next 20 years.
"For Australia, there is no bigger threat than a breakdown of co-operation between the US and China," the former prime minister told the annual Committee for Economic Development of Australia dinner in Sydney on Tuesday.
"We must do all we can to resist such an impasse," he said referring to escalation in tension between the two superpowers.
"America is still and will remain our security alliance partner, the world's predominant military power and a great democracy."
He told diners Australia had an "overwhelming interest" in making sure the two powerful states "co-exist harmoniously".
Mr Keating said he believed the recent meeting between US President Donald Trump and Chinese President Xi Jinping to have been encouraging.
During this meeting Mr Trump referred to President Xi Jinping as a great friend and said the Chinese people should be proud to have him as their leader.
Despite the appearance of a growing bromance, Mr Keating said there was no real evidence of progress on the key issues of the US's massive trade imbalance or North Korea's nuclear program.
He said Australia had no interest in publicly or privately encouraging the US or China "down the path of crude economic nationalism".
Mr Keating said in government he had been committed to market reforms but always alongside the "economic and social imperatives of inclusion and justice".
However the US lacked this balance.
"We can see in America today what the loss of these balances means, watching the extremes of income and wealth rip at the fabric of American society.
"As time has passed we can see how superior Australia's model under Labor has been."
However Mr Keating added despite Australia's prosperity he had a growing concern for income distribution is becoming more unequal and "our wealth distribution much more so".