Almost 100,000 jobs could disappear and households could suffer a $1,500 reduction in annual income if Australia follows a global swing towards protectionism, the Productivity Commission has warned.

In a new report, the commission says a spike in protectionism fuelled by US President Donald Trump's trade doctrine could spark a global recession.

Commission chairman Peter Harris said a wave of protectionist policies across major economies would wreak disastrous consequences on society's most vulnerable.

"The consequences are not just you protecting your own home markets, it's what other countries do in response to that," Mr Harris said.

"The global contagion that can come from that is very serious.

"The bottom line is that protectionism clearly damages people, clearly those least able to look after themselves in the workforce."

He said while global recession was not an immediate threat, world leaders needed to take action now to avoid catastrophe.

"The important point is to crystallise in the minds of our leaders if we revert to a world where everybody tries to [put themselves first], nobody can implement such a policy effectively and all we do is damage ourselves."

Further protectionism will hurt most vulnerable

Mr Trump's campaign for the White House was characterised by his 'America first' mantra and he famously pulled out of the ambitious Trans-Pacific Partnership earlier this year.

Far-right politicians across Europe have echoed Mr Trump's promises for a populist pushback against globalisation.

Mr Harris said after a quarter of a century of economic growth, Australia now stood at a crossroads.

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"We're faced with a radical change in US trade policy, which if replicated by populism in Europe could see Australia come under political pressure to join that kind of protectionist trend," he said.

A continuation down a path of stricter protectionist policies could affect more than 80 per cent of Australians, Mr Harris said.

"For the average income household, a full-on trade war will reduce income for that household by $1,500 per year for the period that the protectionism lasts," he said.

"Beyond that, the impact on employment in Australia is the probably loss of 100,000 jobs, and beyond that the possible mothballing, or closing in perpetuity, of up to 5 per cent of our capital stock.

"The particular impacts will fall on those with least ability to protect themselves, so the lowest-skilled workers are the ones most exposed to these kinds of shifts."

Follow Peter Ryan on Twitter @peter_f_ryan.