Market turmoil, “currency manipulation” and rising rhetoric. As the trade war fallout engulfs the global economy, attitudes in China and the United States are hardening.

In the space of a week, Beijing and Washington appear to have run out of road when it comes to finding common ground.

US President Donald Trump has posted a series of tweet tirades with the latest branding China a “currency manipulator.” In response, the Ministry of Commerce announced that Chinese companies would stop buying US agricultural products.

Concrete diplomacy has become the new realpolitik.

“From bilateral to multilateral forums, the US has been using every platform to put ‘maximum pressure’ on China in the hope that it would cave in. Yet, has its approach worked?” Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, a consultative body run by the Ministry of Commerce, said.

“It’s evident to all, especially market players, that the increasingly dirty pressure tactics used by the US have not caused any visible damage to China’s real economy, including industrial production,” he added in a commentary published by the state-run China Daily on Tuesday.

Growth

Still, Mei’s assertion is open to debate.

Last week, the National Bureau of Statistics of China reported that manufacturing activity contracted for the third straight month in July after releasing the official Purchasing Managers’ Index, a gauge highlighting the health of major companies.

Even GDP growth of 6.2% in the second quarter came in at a 27-year low, buffeted by a slowing economy and the trade conflict.

“The PMIs still appear consistent with a renewed slowdown in year-on-year growth in industrial output and broader economic activity,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said in a note to the media.

But the year-long dispute, and in particular the currency backlash, is starting to be factored into the markets, as researcher Mei pointed out.

“[Trump’s] decision to impose additional tariffs on more Chinese goods caused Wall Street to dive into the red with stock indexes sliding,” he added.

New York certainly took a hit overnight as did major European markets. The downward trend continued in Asia on Tuesday with the Nikkei falling 0.65% after dropping 2.9% in early trading.

Elsewhere, Shanghai was down by nearly 1.6% while Hong Kong dipped 0.67% after tumbling more than 2% at the opening bell.

On the currency front, the People’s Bank of China ratcheted up the pressure in a statement which “resolutely opposed” Washington’s claims that Beijing was driving the yuan lower against the dollar.

“The US side disregarded the facts and unreasonably labeled China a ‘currency manipulator,’” the de-facto central bank stated after the yuan steadied on Tuesday following Monday’s plunge below the sensitive exchange rate of seven to the US dollar.

“The Chinese side is resolutely opposed to this,” it added.

‘Weaponized’

Analysts tended to take a different view.

“[The People’s Bank of China has] effectively weaponized the exchange rate,” Evans-Pritchard said. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US.”

Indeed, a similar opinion was expressed by Edward Moya, a senior market analyst at the global forex group OANDA.

“Continued yuan depreciation should be expected, albeit at a staggered pace,” he told the AFP news agency. “Currency wars are taking center stage … [and] Beijing is likely to tolerate further weakness and we could see another 5% before the end of the year.”

Barring a U-turn, the world’s two largest economies appear to be hurtling down a road to financial mayhem with the global economy held hostage in the back seat.