These are dangerous times.

The weekend negotiations between US President Donald Trump and China's Xi Jinping, on the sidelines of the G20 meeting in Osaka, have been portrayed in some quarters as a breakthrough in the trade war.

It is nothing of the sort.

The pair merely agreed to no further escalation in hostilities and, even then, only on a temporary basis. There has been no scaling back and no clear path to resolve the dispute.

While the tariffs are directed at Chinese imports, it is American firms and consumers who ultimately are saddled with the 25 per cent impost on $US250 billion worth of Chinese imports, significantly higher than in May.

There's growing evidence the existing measures already are hurting. As Mr Trump noted, just prior to his much celebrated meeting with Mr Xi, America would triumph because China's economy was "going down the tubes".

He's right, to an extent. Chinese manufacturing is contracting with a widescale downturn reported in some industries, such as automobile manufacturing where tens of thousands of workers have been laid off in recent months.

Even Chinese information technology outfits are feeling the chill and have been rushing to trim their workforces.

Far from picking up the slack, as Mr Trump would have hoped, American firms are feeling the pinch.

While not yet in contraction, growth rates in US and South Korean manufacturing have slowed dramatically in recent months and confidence levels are sinking.

As this graph from investment bank Morgan Stanley illustrates, US output has been sinking as quickly as China's.

This graph shows the decline of US and Chinese manufacturing output. ( Morgan Stanley Research )

The US and global indices are on the left-hand axis. Any reading above 50 represents growth. China's reading, on the right-hand axis, shows it is in decline.

Central bankers at a loss

As the global economy edges towards a dramatic slowdown, and possibly even recession, central banks now are being forced to contemplate ever more radical measures and even resurrect some long-abandoned rescue plans.

After almost a decade of money printing and the lowest interest rates in more than 5,000 years, monetary policy wonks now are grappling with the idea that governments should play a more active role in stimulating the economy. Borrow cheap and spend up.

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It's a line pushed by Reserve Bank of Australia (RBA) governor Philip Lowe, who has begun amplifying his calls for governments to spend big on infrastructure programs.

His sentiments were echoed over the weekend by the Bank for International Settlements, the central bank for central bankers.

Having cut rates just a month ago, there is a strong chance the RBA will follow up with another tomorrow and perhaps a third by August.

Whether Mr Lowe can convince Prime Minister Scott Morrison to borrow cash and spend big, however, is debateable. The Coalition was just returned to power on the basis of superior economic management with surpluses stretching out for the next decade.

Mr Lowe backed calls for government spending on infrastructure. ( AAP: Dan Himbrechts )

In the US, the Federal Reserve has come under increasing pressure from President Trump to begin cutting interest rates, primarily to keep Wall Street and property prices buoyant in the lead up to the US elections next year.

Given the recent trends in global output and trade, the Fed may have no alternative, particularly since the European Central Bank has indicated the sudden deterioration has forced it to abort plans to end its stimulus program.

Political alliances fraying

Unlike the dark days of the financial crisis a decade ago, politically there appears little resolve among leaders to work together to avert a rerun.

Just last week, in the lead-up to the G20 summit, Mr Trump did his best to alienate almost everyone, including his Japanese hosts, who he said would respond to a military attack against the US by "watching it on a Sony television".

He admonished India for raising tariffs (in retaliation to US imposed tariffs), described Vietnam as "the worst of all" when it came to trade, and used erroneous figures to belittle Germany as "security free-loaders".

And that was just his allies. When it comes to China, the President has invoked a three-pronged attack against his nemesis, involving trade, technology and finance.

While the tariffs and their effects have been well canvassed, the impact of denying Chinese firms such as Huawei with US technology could be even more devastating.

"We're right back on track," Mr Trump told reporters after his meeting with Mr Xi. ( AP: Susan Walsh )

There's little doubt Beijing has engaged key corporates on a mission for global domination and actively encouraged technology theft. Given the underhand and increasingly sophisticated methods Beijing uses in its surveillance of its own population, the US has every right to protect its interests.

Ironically, the Trans-Pacific Partnership had similar goals to the strategy now championed by Mr Trump; isolating China while cementing the dominance of US corporations over even the sovereign nations within the partnership.

The third prong in Mr Trump's China attack involves the banking system. Last week, a US judge found three Chinese state-owned banks in contempt for refusing to cooperate in an investigation into North Korean sanctions violations.

One of the banks, the Shanghai Pudong Development Bank — China's ninth-biggest — runs the risk of losing access to US dollars and thereby being shut out of global finance.

With cracks already appearing in China's banking system after the collapse of a Mongolian Bank last month, and with interbank lending rates crashing below one per cent last week, concerns about credit supply in a hugely indebted economy have become elevated.

Who would be hit hardest?

Ah, the irony. It was China that rode to the rescue a decade ago to rescue global capitalism from itself and its excesses after a spectacular implosion in America's banking system.

For now, it's a game of brinkmanship. Mr Xi, who doesn't have to suffer the inconvenience of elections, would relish the prospect of a US recession as Mr Trump kicks off his campaign for a second term.

But he'd also have to endure a severe downturn at home that could undermine his own standing.

What a difference a decade makes.