Beijing is holding back on a response to the recent U.S. announcements about punitive trade moves, but the situation may escalate if no mutually beneficial solution is found, a former diplomat said on Thursday.
President Donald Trump last week said that the U.S. will be imposing heavy duties on steel and aluminium imports, a sweeping move against all countries, but one that is seen to be targeted primarily at China.
"When Liu He, the senior economic adviser to President Xi Jinping, came to the United States, he asked the Trump administration to do two things — one, negotiate with them and two, tell them what the United States actually wants," Susan Shirk, former deputy assistant secretary of state during the Clinton administration, told CNBC.
"But the Trump administration opted instead to punish China in a way that is going to be damaging not just to China but to the United States consumer and to many of our other friends like Canada who are our trading partners," said Shirk, who was involved in U.S. policy toward China, Taiwan, Hong Kong and Mongolia.
On Thursday, Chinese Foreign Minister Wang Yi said that China would make a necessary response in the event of a trade war with the United States but said such a war would only harm all sides.
"So I think the Chinese are scrambling to hope that reason prevails in Washington," she added.
If not, China will retaliate "for sure," she told CNBC.
"At first, probably quite modest retaliation, but if the Trump administration continues in this direction without trying to find some mutually beneficial solution to all the complexities in our economic relationship, things will escalate for sure," Shirk added.