The annual Sino-US Comprehensive Economic Dialogue session in Washington kicked off this week, but ended abruptly on the same day, with cancellation of the traditional press conference, no joint statement and no new announcement of a bilateral trade deal.
The dialogue sputtered ahead of the deadline of the 100-day trade plan struck at the Xi-Trump summit back in April that aimed to resolve tensions over trade and geopolitics.
UBS Chief Investment Office (CIO) said the honeymoon period between China and the US under the 100-day trade plan seemed to be over, with the North Korea issue on the forefront, and the return of trade tariff talk by the US.
CIO believes that without getting results of the healthcare and tax bills through Congress, Trump may end up focusing on trade again. Many US trade protection bills do not require Congressional approval, and can be carried out under the president directly.
"This dialogue overshadows the Sino-US trade roadmap in 2H17. We recall our scenario of Sino-US trade relations early this year, that a trade war between the two countries is possible, though of limited scope," said Yifan Hu, Regional CIO and Chief China Economist.
Under such a scenario, the US might charge additional tariffs on sectors including steel, aluminum, electronics, textiles and garments. China might exact revenge in such sectors as agricultural goods and aircraft.
"Trade war hurts bilateral interests, so eventually the parties are likely to reconvene for a new round of trade and investment negotiation," said Hu.