China's President Xi Jinping and U.S. President Donald Trump Fred Dufour | AFP | Getty Images

Currency wars, widespread protectionism and billion-dollar losses could arise if the U.S. and China fail to settle their trade differences before March 1, the UN warned in a new study. Published by the UN Conference on Trade and Development (UNCTAD) on Monday, the report said that while some countries would see a surge in exports, negative global effects were likely to dominate. China and the U.S. have been embroiled in a trade dispute since early 2018. In September, the U.S. added 10 percent tariffs on around $200 billion of Chinese imports, and it planned to increase those rates to 25 percent in January. However, both parties agreed to freeze these increases until March 1 while they engaged in talks.

Collateral damage

According to the UN report, continuing or hiking tariffs between the two superpowers would have an unavoidable impact on the "still fragile" global economy, including disturbances in commodities, financial markets and currencies. "One major concern is the risk that trade tensions could spiral into currency wars, making dollar-denominated debt more difficult to service," UNCTAD's report said. "Another worry is that more countries may join the fray and that protectionist policies could escalate to a global level." A currency war occurs when nations deliberately depreciate the value of their domestic currencies in order to stimulate their economies. The report's authors noted that protectionist policies generally hurt weaker economies the most, while tit-for-tat moves of the trade giants would have a domino effect beyond their domestic markets. "Tariff increases penalize not only the assembler of a product, but also suppliers along the chain," the report noted. Chinese exports affected by U.S. tariffs would likely hit east Asian value chains the hardest, UNCTAD said, with an estimated contraction of around $160 billion.

International gains