Australians cannot be “passive bystanders” as the United States and China work through their trade differences, Scott Morrison has warned.

“We should not just sit back and passively await our fate in the wake of a major power contest,” the prime minister will tell a Bloomberg event in Sydney on Wednesday.

“This underestimates and gives up on the power of human, state and multilateral agency.

“There are practical steps that we can pursue. So we will play our part. We will not be passive bystanders.”

He also warned collateral damage could impact to other nations and the global economy from the strained relationship between the economic giants.

The comments come on the eve of Mr Morrison attending the G20 summit in Japan, where the US-China tensions are expected to dominate.

China’s ambassador to Australia, Cheng Jingye, says his country does not want a trade war.

“China is willing to work together with the US to reach a win-win solution on the basis of equality and mutual respect,” he told an Australia China Business Council event in Canberra, ahead of the prime minister’s speech.

“As we have made it clear, China is open to negotiations but we will also fight to the end if needed.”

Mr Morrison says America holds legitimate concerns that the existing rules-based trading system can’t cope with China’s economic structure and policies.

“The rules-based system is in need of urgent repair if it is to adequately respond to these new challenges, including the rise of large emerging economies, changing patterns of trade and new technologies,” he will say, arguing all nations have a responsibility to work towards this modernisation, which will be one of the topics for discussion among G20 leaders.

He will stress Australia is keen to continue strengthening its relationships with both the US and China and urge people not to view the trade issues through a binary prism.

“It is in no-one’s interest in the Indo-Pacific to see an inevitably more competitive US-China relationship become adversarial in character,” Mr Morrison will say.

Mr Cheng said mutual political trust and beneficial cooperation were both indispensable to strengthening Australia’s ties with China, likening them to two wheels.

“The relationship between China and Australia can only be steadily and increasingly improved when both wheels are spinning with the same speed and in the same direction, mutually reinforcing each other,” he said.

“To stabilise the wheel of mutual trust it is essential for both sides to view each other’s development in an objective manner and regard each other as a cooperative partner.”

This required both nations to respect the other’s social systems and interests, expanding common grounds while properly handling differences, he said.

Mr Morrison will also use his Sydney address to emphasise the focus Australia is putting on its relationships in the Indo-Pacific.

“It is where we have our greatest influence and can make the most meaningful impact and contribution … especially if we choose to focus and target our contributions where we can have the greatest impact,” he will say.

“We are a standard bearer for democracy and the rule of law.”