Although the CNY would be under downward pressure in the short term because of the ongoing trade war, it still has some space to fluctuate, Tim Fang, head of global markets of Hong Kong-based investment bank AMTD International, told Xinhua on Monday.

"I believe in PBOC's capability (in keeping the yuan stable). I'm not very concerned," he said.

Rising trade war to hamper growth potential

The current developments over tariffs and currency would "present a significant headwind for global growth, corporate profits, and markets," said UBS strategists.

The "unexpected" U.S. labeling has caught global financial markets off guard, fueling market panic over a long-term U.S.-China trade dispute, Fang said.

"It is irresponsible of the U.S. administration to designate China as a currency manipulator," Fang said. "The U.S. government once took the initiative to depreciate the U.S. dollar to incentivize economic recovery, especially after the financial crisis. But it was seldom questioned."

What's worse, Steven Gu, a Tennessee-based attorney and certified public accountant, told Xinhua that he remained gravely concerned over the global economic growth potential, as the U.S.-China trade war has deteriorated at a much faster speed that exceeded most people's expectations.

U.S. financial services firm Moody's also said in a note that the escalation of trade tensions would increasingly weigh on the global economy and supply chains "in an environment of already decelerating growth in the U.S., the euro area and China, with the uncertainty dampening business investment and trade flows."

An extended period of trade conflicts could cause "more downward pressure on global trade and growth momentum," said BofA Merrill Lynch economists, adding that there would be greater uncertainty that weighs on business investment, and tighter financial conditions if markets continue to react negatively.

"With no end in sight, there are significant downside risks to our forecasts for U.S. and global growth. If the trade war escalates -- this could include a more explicit currency war -- uncertainty would be considerably higher and financial conditions much tighter," they cautioned.

"Consumers will also be hit more directly from this latest round of tariffs since there is a greater share of consumer goods in this basket of imports," they added.

More significantly, from Sachs' perspective, U.S. protectionist policies represent "the biggest threat" to the global open system in modern times, as international trade is based on a mutually beneficial, not winner-or-loser mentality.

"Trade wars are bad, and easy to lose. In fact, everybody is losing," Sachs wrote.

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