The prime minister, Malcolm Turnbull, has warned that rising tensions between an increasingly assertive China and populist United States pose a threat to the global economy and stability.

Turnbull urged governments in a speech in Perth to defend the free trade and rules-based economic system that had served the world so well, saying it faced its greatest threat since the second world war.

“The siren songs of populists advocating protectionism as simple, quick solutions have gained considerable support,” he said in a speech to launch an Australian-German bilateral conference.

“There is a real risk that rising major power trade tensions – tensions between assertive state capitalism in China and populism in the United States – could undermine the stability of the WTO’s rules-based trading system and its all-important mechanisms for settling disputes.

“Its ability to advance trade liberalisation, contain protectionism and enforce international rules faces greater challenges than any time since the creation of the multilateral trading system in the 1940s.”

Our fair, open societies and liberal democracies were based on fragile foundations, Turnbull said.

That system had made Australians’ real average household income far greater since trade liberalisation in the 80s.

GDP per person had risen 20-fold in China and even faster in South Korea, while India was now the world’s fastest-growing major economy.

During their meeting in Perth, Turnbull said he and German president Frank-Walter Steinmeier discussed how political tensions were increasing and threatening global prosperity and international order.

German chancellor Angela Merkel has been called the new “leader of the free world” after the election of Donald Trump and Steinmeier suggested the US president’s leadership style in promoting protectionism was a concern for Germany and the EU.

People should not forget the lessons of the 1930s and turn in on themselves, taking populist comfort in protectionism, Turnbull said.

“Continuing prosperity assumes we do not close our doors to the flow of people, capital, imports or ideas.”

The solution was to reinforce the rules-based structure such as ensuring that the 12-member Trans Pacific Partnership went ahead without the US, he said.