What happens when the planet's two biggest economies play a high-stakes game of chicken?

The world may be about to find out, with President Donald Trump and his Chinese counterpart Xi Jinping both holding favourable enough economic hands to make it hard to predict who blinks first, analysts said.

Hope for an imminent resolution of the China-US trade dispute dimmed after Trump vowed to further raise import tariffs this week to punish China for what he framed as bad-faith negotiating, rocking world markets.

Here are some of the key questions regarding the impasse.

Why has Trump turned the screws now?

That remains unclear but the president has been known to tout strong US economic data or Wall Street gains as evidence that he is "winning" the trade war and as leverage against China.

Recent developments will have given him ample reason to up the ante.

April data indicated vigorous American job growth, a fresh sign of US economic strength that has helped propel the S&P 500 and Nasdaq stock indices to record highs this month. Last month figures showed the world's top economy grew at a faster pace that expected in the first quarter.

How will China react?

Beijing's shrewd communist leaders have been negotiating favourable economic arrangements with the world for decades, and few observers would bet on them suddenly capitulating.

Whatever Xi does, he also has reason to hold firm.

The world's second-largest economy is decelerating from its era of hyper-growth, but it expanded by a better-than-forecast 6.4 percent in January-March, a sign of stability despite the trade turbulence.

And Chinese stock markets -- among the world's worst in 2018 -- are up significantly this year after Beijing pulled an array of policy and monetary levers to keep the economy chugging.

"Both sides have reason to be confident and ask for more," said Bao Ting, strategist with Great Wall Securities.

"It's not surprising for negotiations to go back and forth in the final stages" as the two sides drill down on nitty-gritty details, she added.

So whose hand is stronger?

Probably Trump's, analysts say, because Xi faces a challenge maintaining the economic growth on which the government stakes its ruling legitimacy, while also implementing tricky reform of inefficient state industries.

Of particular concern is a fresh spike in debt this year as Chinese authorities have relied heavily on eased credit restrictions to juice the economy while they battle Trump's trade pressure.

The International Monetary Fund has previously called China's debt addiction "dangerous".

"This massive credit stimulus has stabilised China's economy for now but the impact is unlikely to be long-lasting or without complication," said Brock Silvers, managing director of Kaiyuan Capital in Shanghai.

"China could soon regret a missed chance to end to what looks to be a worsening and increasingly risky trade war."

But China has for years used a flood of credit and targeted pump-priming to keep its economic miracle going, and today stands taller than ever.

"That gives China a lot of strength. They have many different ways of keep things churning," said Christopher Balding, an expert on China's economy at Fulbright University in Ho Chi Minh City.

What if neither side blinks?

Stocks fell worldwide after Trump's tariff threat, and an extension of the already lengthy trade standoff could spell more pain.

"If they fail to reach an agreement, China's economy would worsen and global economic growth would slow down," said Bao.

Much depends on whether China retaliates against Trump's move.

China is already wary over escalating the fight and seems unlikely to hit back with more tariffs at the moment and may favour yet more stimulus measures, said Tao Wang, head of China research for UBS.

But that could change. "Certainly the risk of an all-out US-China trade war has increased significantly," Tao said.

China said Tuesday its top negotiator, Vice Premier Liu He, would attend the talks in Washington this week, which Goldman Sachs said in research note, "would indicate that they believe a deal is still reasonably likely".

Will China ever meet overall US demands?

Key US demands include greater access to China's markets, broad reform of a business playing field that heavily favours Chinese firms, and a loosening of heavy state control by Beijing.

But those are the very policies that abetted China's stunning economic rise, and Beijing is unlikely to surrender them, said Balding.

"This is a fundamental clash of worldviews between a capitalist, open economy and a closed communist one," Balding said.

"There aren't a lot of ways to square that circle."

Asking for the moon may just be Trump's "Art of the Deal" approach to securing at least something that he can tout heading into elections next year.

Trump plays hardball with China ahead of key talks
Washington (AFP) May 6, 2019 - US President Donald Trump decided to play hardball with Beijing ahead of a key round of negotiations this week, threatening to impose tariffs on all of the $550 billion in Chinese goods imports.

The threat tanked stock markets worldwide and frightened US farmers and businesses caught in the crossfire who have been banking on a resolution to the year-long conflict.

Comments from officials in recent weeks indicated the sides were making progress towards an agreement aimed at addressing longstanding concerns about the forced transfer or outright theft of American technology, as well as reducing the US trade deficit with the world's second largest economy.

But after his weekend threats to ratchet up tariffs by the end of the week -- which prompted reports the Chinese might cancel the talks in Washington due to begin on Wednesday -- Trump remained defiant.

"The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars," he said on Twitter on Monday. "Sorry, we're not going to be doing that anymore!"

Trump has continued to equate the US trade deficit as a loss or as payments to trading partners and tariffs as payments from the offending country to the United States.

But economists stress that it is American businesses and consumers who pay the tariffs and are hurt by higher prices.

- Restrained growth -

US manufacturers and farmers were becoming more optimistic amid signs of progress and comments from officials that the talks were entering their final phase, reinforced by reports Beijing was sending 100 officials to this week's negotiations.

The hope was that tariffs and counter-tariffs on a total of $360 billion in two-way trade would be lifted, helping farmers and manufacturers who had suffered in the trade war.

But Trump in a Twitter screed on Sunday accused China of trying to "renegotiate" the trade deal, threatened to more than double the existing tariffs to 25 percent from the current 10 percent and then extend the higher tariffs to the remaining goods that had been spared so far -- although that would require a lengthy process of notification and public hearings.

"President Trump clearly sees tariffs as leverage. I wouldn't put it past him to use additional tariffs to gain additional leverage," said Jake Colvin of the National Foreign Trade Council, a pro-trade US business group.

However, the actions would "come at the expense of American businesses and farmers and consumers as well."

Trump credited the tariffs with the strong first quarter growth but economists and businesses have complained that the trade conflict is in fact hurting the bottom line and the uncertainty is causing them to delay investment.

"We know, however, that the US tariffs are ultimately borne by US consumers and businesses facing higher input costs," said Gregory Daco of Oxford Economics.

"What is more, the US economic performance of late has been restrained, not facilitated, by tariffs."

And escalating the tariffs to the remaining Chinese goods, which would be expected to spark further retaliation from Beijing, would cut 0.3 percentage points off US growth, according to Oxford Economics.

Despite Trump's tweetstorm, Chinese Foreign Ministry spokesman Geng Shuang said a Chinese team was "currently preparing to go to the US for negotiations" -- but he did not say when or whether top negotiator Liu He would lead the delegation.

Geng said "positive progress" had been made in 10 rounds of high-level negotiations and that the whole world was watching.

"We still hope that the US can work together with China, walk shoulder to shoulder and strive for a mutually beneficial win-win agreement on the basis of mutual respect," he said at a regular media briefing.

Wells Fargo analyst Paul Christopher said with all the work that has gone into the talks, he still expects the two sides to reach an agreement because "each leader has strong domestic political and economic reasons to avoid the significant negative impact of a miscalculation."

But he warned that while a deal would be positive to both economies, "new tariffs or a breakdown in talks could undermine that outlook quickly," slowing global growth and trade.

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US-China trade dilemma: how to hold Beijing's feet to the fire
Washington (AFP) May 5, 2019
US and Chinese officials say a historic deal ending their ongoing trade war could be imminent, but a key question is how can Washington be sure Beijing will live up to its end of the bargain? With up to 100 Chinese officials reportedly expected next week in Washington, with the possibility of unveiling a grand agreement after months of tensions, that question is hanging over the talks. Beijing may make eye-popping offers to buy American energy and agriculture exports as a means of cutting the so ... read more