The global economy stands to face a major threat this year as the world's two largest economies, China and US, continue to exchange barbs over trade issues heightening the already volatile trade situation between the two nations.

In a report released by the Bank of America Merrill Lynch (BofAML) on Tuesday, the bank warned the two countries that the global economic status stands to lose if the two nations' trade war would not be settled.

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The bank report said that the Sino-US relationship is "crucial" for the world economy since the two sides are the most powerful, among the rest of the nations, in moving and changing the global economy.

Currency Manipulator

According to the report, the relationship will be put to a test in the coming months after US President-elect Donald Trump assumes office in less than two weeks.

"It remains to be seen whether the incoming US administration will name China a currency manipulator," the BofAML report said.

During his campaign sorties, Trump had attacked China on its alleged unfair trade practices, calling the Asian giant a currency manipulator and accusing it of committing theft of trade secrets and cyber hacking.

Unfair Trade Policies

Trump has also charged Beijing with robbing jobs from American workers and slammed its alleged unfair trade policies.

The incoming US president, in his anti-China rhetoric during the campaign period, vowed to slap a 45 percent tariff on all Chinese imports as a "punishment" for Beijing's alleged unfair trade practices.

Although economic analysts at the BofAML said that they would be waiting if Trump would put into action his anti-China rhetoric,his selection of Peter Navarro, a hardline critic of China, as head of the White House National Trade Council has given them a glimpse into the kind of trade relations that could possibly be established between the two countries.

"Invoking the law would trigger a year of 'enhanced bilateral engagement', and if Trump deems the results as inadequate he can impose a number of relative modest trade restrictions," the Bank of America report said.

The report emphasized that if both sides would inflict financial pain on each other, the rest of the global economy stands to feel the same pain, too. 

TagsBank of America Merrill Lynch, currency manipulator, World Economy, Incoming US President Donald Trump, President Xi Jinping, unfair trade practices, cyber hacking, anti-China rhetoric, china, Beijing