Now, analysts do not know what to expect from the Xi-Trump summit. It is unclear whether Trump’s comments are merely a negotiating tactic or a declaration of intended action given his knowledge of the concessions the Chinese have already offered.

All eyes on Buenos Aires as Beijing and Washington hammer out the details for the high-stakes summit between Xi Jinping and Donald Trump

The worst case scenario, analysts caution, is that Trump will be disappointed with the results of his meeting with Xi and move ahead with more tariffs in an increasingly fragile global economic and financial market environment.

This could put too much pressure on China’s economy, leaving Beijing with no choice but to let the yuan’s exchange rate fall further, exactly the opposite of what Trump wants, said Qinwei Wang, senior economist at Amundi Asset Management, Europe’s largest asset manager with €1.27 trillion (US$1.4 trillion) of assets under management.

It is in the US and China’s interests to reduce economic and market risks by agreeing to some form of deal in Argentina that avoids further tariff increases, even if it is not the final deal.

The People’s Bank of China (PBOC) has been intervening recently in the currency market to prop up the yuan to avoid angering the US, Wang noted.

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A ceasefire scenario would help keep the yuan from falling below the psychologically 7.00 per dollar level. On the other hand, breaking the 7.00 threshold could potentially trigger market panic and lead to a systemic crisis in the financial system, he warned.

The yuan was changing hands at 6.95 per dollar on Tuesday.

China’s “national team” of state-controlled financial companies have also stepped into the mainland’s stock market to stem recent sharp declines and curb the risks of that decline spreading to the rest of the economy amid uncertainty what a tougher US policy stance might mean for China’s future, Wang said.

“If [China] collapses, then Asian currencies collapse, emerging markets collapse and then US equities will also collapse. They are all connected with each other,” said Wang. “Trump should be very careful, especially after the recent US market correction.”

Trump said in an interview with The Wall Street Journal on Monday that it is “highly unlikely” he would accept an offer from Xi that would cause him to postpone the increase in tariffs on January 1. He also said that it was possible he would impose tariffs, perhaps at a 10 per cent rate, on another US$267 billion in Chinese imports, which would place tariffs on virtually all Chinese imports.

The final amount and type of Chinese goods to be tariffed is Trump’s personal decision, which makes it unpredictable, analysts said.

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They noted that in May, US and Chinese officials reported they had reached the outlines of a trade deal, only to have Trump turn around and announce the first round of tariffs on US$50 billion worth of Chinese imports in June. China then retaliated and the trade war began.

Ken Cheung Kin-tai, senior Asian currency strategist at Mizuho Bank, assigned a 65 per cent chance to Trump and Xi agreeing to a ceasefire.

He said that Trump is losing the upper hand at the negotiating table given US growth has peaked and started to slow and because of the election losses suffered by his Republican Party in the midterm elections. China, on the other hand, has shifted to a proactive fiscal stimulus policy that will largely offset the impact of the trade war.

Steve Englander, global head of G10 foreign currency research at Standard Chartered Bank, said that ramping up tariffs to 25 per cent on all Chinese imports would carry economic and financial market risks and even political risks.

“[The Trump administration] doesn’t want to take the risk of slapping on tariffs at the beginning of the year and ending up with an erratic economy,” Englander said. “Ideally a settlement around the end of 2019 of China buying oil and soybeans would give time for it to have a real impact in the run up to the US [presidential elections in 2020],” to Trump’s benefit.

Uncertainty over the trade war likely to weigh on China growth, investments next year, analysts say

However, Dong Chen, senior Asia economist and Thomas Costerg, senior US economist at Pictet Wealth Management, said that bilateral conflicts were deep-seated and would be hard to resolve. They predicted the US would likely end up extending the tariffs to all Chinese imports some time in 2019.

The US Congress too has toughened the government’s policy stance on China, recently passing a law that expanded the powers of the Committee on Foreign Investment in the United States, or CFIUS, to examine mergers with US companies and investment in the US by foreign entities. The move is aimed at more broadly reviewing transactions tied to China on national security grounds.

The US has also denied visas to some Chinese researchers, scientists and students in a sign of a further tightening of entry controls as ties between the two countries worsen.

Additional reporting by Chad Bray