Goldman Sachs warns of inevitable US-China trade confrontation

The investment bank believes it is unclear to what extent such a confrontation would go, but that it had no reason to suspect that US President Donald Trump would not follow through on his campaign promises.

Trump has been hostile towards China , both throughout his election campaign and since being confirmed as the new leader of the US. He promised to introduce a 45% trade tariff on imports from China, in order to boost the US economy.

"Trump has been publicly critical of U.S. trade policy for decades and made it a key aspect of his campaign; we see little reason to believe that he will not follow through on these commitments in general terms," said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs.

In the report, which was also authored by the bank's senior political economist Alec Phillips, Goldman set out a series of "small" and "large" actions which could result from a breakdown of trade between the two nations.

"The most likely options in the near term involve the announcement of a formal process to determine whether China is 'manipulating' its currency," said Tilton.

Any attempts from the US to impose heavy tariffs on Chinese imports, or label its government as a currency manipulator, is likely to initiate a reaction from the Asian superpower.

Earlier this week Alibaba CEO Jack Ma warned that 'war' would follow if free trade stops.

During the launch of Alibaba's new headquarters in Australia and New Zealand, Ma did not specifically mention the policies of US President Donald Trump or the trade fallout from Britain's exit from the European Union, but promoted "fair, transparent and inclusive trade".