Mike Pezzullo calls for Donald Trump to convene urgent G7 meeting as he warns trade stoush could drastically escalate

Tensions between the two nations intensified this week after US President Donald Trump further increased tariffs on Chinese goods, to a whopping 145 per cent.

The move came as Trump backflipped on other key tariffs, reducing some hefty country-specific duties down to 10 per cent for a 90-day period.

Trump said substantially upping the tariffs on Chinese goods was done in response to "the lack of respect that China has shown to the World's Markets".

During an interview with Sky News Australia's Laura Jayes on Friday, Mr Pezzullo noted that "economic tensions" could easily turn "into very, very challenging security questions".

"I'll leave you with this one historical vignette. It's not directly applicable at the moment, but in the end, after 10 years of a strategic expansion in Asia in the 1930s by Imperial Japan, they'd gone into China," he said.

"Once they invaded Indochina in 1941, what did the Americans do? They froze their financial assets so that they could not buy oil. The Japanese government said, we're gonna run out of oil. They attacked Pearl Harbour.

"We're nowhere near that Laura, absolutely nowhere near that, I just want to stress that to your viewers. But there is a chain of consequences where if you don't address these financial, trade, commercial imbalances, they can potentially, and I just want to stress potentially, become something else."

Mr Pezzullo has also called on Trump to urgently convene a meeting of the "G7+" to discuss a broad range of trade-related matters, including "US chronic trade deficits" and "China's deliberately engineered manufacturing overcapacity".

"This would not be a meeting whose objective would be to craft and issue a worthy but forgettable communiqué," he said in his 'The Pax Americana Accord: The Deal of the Century' piece for the Australian Strategic Policy Institute.

"At such a meeting, terms would be set out and agreed in outline, under the threat of total trade war. The details could then be hammered out over the remaining balance of the 90 day pause period.

"The G7+ would consist of the United States, Germany, Japan, the United Kingdom, France, Italy, and Canada (as G7 members), along with India, Brazil, South Korea, Australia, Mexico, Indonesia (representing itself and the nine other members of ASEAN), and the European Union (in its own right, and also representing the 24 non-G7 EU members)."

Trump lashed out at China in a post on Truth Social where he announced the increased tariffs. 

"At some point, hopefully in the near future, China will realise that the days of ripping off the USA, and other countries, is no longer sustainable or acceptable," he said.

Trump also told reporters that China had for a long time "really taken advantage" of the United States but expressed confidence the two countries could "get along very well" as he respected Xi Jinping, the Chinese President, Reuters reported. 

"In a true sense he's been a friend of mine for a long period of time, and I think that we'll end up working out something that's very good for both countries," he said.

Chinese Foreign Ministry spokesperson Lin Jian this week told reporters that while Beijing did not want to engage in trade wars, it would not back down against the US.

"Let me stress once again that tariff and trade wars have no winner. China does not want to fight these wars but is not scared of them," he said.

"We will not sit idly by when the Chinese people's legitimate rights and interests are denied or when the international trade rules and the multilateral trading regime are undermined. If the US is determined to fight a tariff and trade war, China's response will continue to the end."