The White House strategy has been to escalate pre-emptively, secure in the belief China has more to lose than the United States on each of the next few rungs up the escalation ladder.
"The trade war is a tactic by Trump, but if it eventually evolves into a strategic confrontation, the result will undoubtedly be disastrous", he said.
"Growth is still resilient, unemployment rates are low, inflation and wages are rising - that's the bigger picture and so they (central banks) have to keep tightening in the face of that", he said.
Weeks after the White House said it wanted to slap 10% tariffs on an additional $200 billion worth of Chinese imports, President Donald Trump's advisors are reportedly urging him to make it 25% instead.More news: Weinstein lawyers ask court to toss sex case, citing emails
Supply chains preparing for 10% tariffs on their imported goods from China will now have to create contingency plans for more than double that amount. Beijing immediately responded with its own tariffs on equal amount of United States goods.
The threats and counterthreats have stirred increasing unease from US business and farm groups, which argue that they are the ones losing money and business based on all the new restrictions.
The Donald Trump administration claims the tariffs are necessary to protect national security and US businesses' intellectual property, and to reduce the country's trade deficit with China.
The US dollar has been strengthening since April as the central bank has been raising lending rates, which draws investors looking for higher returns.
On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.More news: Coles Plastic Bag Ban Back-flip
"These [10%] duties, if applied, would cause disproportionate economic harm to USA interests", he stressed in testimony to U.S. trade officials, adding that any escalation would be catastrophic for United States companies.
China promptly promised it would take countermeasures of its own.
"China's economy is much less dependent on trade now and on trade with the USA than it used to be", says Linda Lim, a professor of corporate strategy and global business at the University of MI, told Zarroli. The two sides have not held high-level talks for a couple months now.
Meanwhile, British factories lost momentum and manufacturers were their most downbeat in almost two years, likely raising fresh questions about the actual need for a Bank of England interest rate hike on Thursday [GB/PMIM].
White House officials had hoped Trump's latest threat would frighten Chinese officials into negotiations, where Trump aims to secure more favorable terms for US manufacturers in one of the world's largest marketplaces.More news: North Korea has not stopped nuclear, missile programme, says confidential UN report
China's commerce ministry said the USA tactics will have no effect on China, and will disappoint countries that are against trade wars. "Industrial activity would also slow down, further cutting into demand".