“The Chinese don’t look like they want to give in either. So I think the way this continues to play out is further escalation, finger-pointing and blaming, not a settling down of this anytime soon,” Kennedy added.
Trump has threatened to impose duties on over $500 billion of Chinese goods exported annually to the U.S. unless China agrees to sweeping changes in its intellectual property practices, industrial subsidy programs and tariff structure.
Beijing has denied Washington’s allegations that it systematically forces the unfair transfer of U.S. technology and insists it adheres to World Trade Organization rules.
“I think really if the hawks in the Trump administration get their way, where this ends is in a disengagement of the two economies, not in a settlement through the kinds of negotiations that have been going on in Washington today,” said Kennedy.
Afterall, these are “two sides who still think they have the upper hand if not the ability to withstand pressure from the other side,” Kennedy added, noting that the Chinese economy is still growing even though its stock markets have taken a hit recently.
Markets should expect bilateral tit-for-tat trade actions to continue for the foreseeable future as both the U.S. and China have managed to convince themselves that they wouldn’t “lose out in this trade war too much,” said Bo Zhuang, chief China economist at investment research firm, TS Lombard.
Beijing will allow the Chinese yuan to “passively devalue” in order to cope with the impact of the U.S. tariffs although authorities will likely blame any decline in thecurrency on the markets, Zhuang said.
“One way or the other, they have to do something. Otherwise the Chinese economy is going to tumble,” Zhuang added.
— Reuters contributed to this report.