Global investors accustomed to saber-rattling on the trade front have largely taken President Donald Trump's protectionist moves in stride, but the hardening stances between the world's two biggest economies have changed the equation, at least for a day.
The tit-for-tat between the U.S. and China slammed global markets on Tuesday, with stocks tumbling and the Dow Jones industrials sliding for a sixth consecutive session -- wiping out its 2018 gains.
Markets had largely taken the trade disputes in stride, but that complacency wasn't in play on Tuesday as the friction dominated headlines and some economists voiced concerns the global economy could lose traction if the disputes escalate further.
"This is not quite serious for the global economic outlook ... yet. However, a Sino-U.S. trade war is looking more likely today than a week or more ago," Carl Weinberg, chief international economist at High Frequency Economics, wrote in a Tuesday note. "If the United States persists in ratcheting up tariff walls to achieve an objective that cannot be realized, then a spiral up in trade tensions seems likely, and that is not a good thing for the United States or China."
Upping the ante, President Trump late Monday announced he was imposing a, and he vowed to follow up with more of the same if China opts to retaliate, as it has against previous U.S. actions.
However, China cannot match the dollar volume of threatened U.S. tariffs, given it exported $452 billion worth of goods into the U.S. during the last 12 months, versus the $162 billion worth of U.S. goods exported to China during the same time, Weinberg noted.
Still, U.S. companies are at risk of Chinese retaliation. After all, one in every four Starbucks (SBUX) is in China, and General Motors (GM) earns 25 percent of its profits from sales of vehicles made in China for its domestic market, Weinberg wrote.
The troublesome aspects for U.S. companies can also be seen in the nearly 21,000 applications for exclusions from steel and aluminum tariffs submitted to the Commerce Department, which is seriously behind in reviewing them, drawing complaints from Republican lawmakers about the negative impact on business in their states.
Before the president's latest move, which did not yet involve a timeline for when the tariffs would take effect, the U.S. had announced levies on roughly $95 billion worth of goods from other nations. While that's a large number by many accounts, it's still just 4.1 percent of U.S. imports.
when asked last week about the impact of Mr. Trump's tariffs on the U.S. economy: "We don't see it in the numbers at all."
Still, if the president does follow up on his latest threatened action, his trade disputes would bring the overall number of goods on which tariffs are being imposed to about 10 percent of those imported into the U.S., which would mark a sizable acceleration.
"While a seemingly minimal impact, as the domestic economy continues to struggle to maintain a near 2 percent growth rate, a loss of even a few tenths is an unwelcome impact," Lindsey Piegza, chief economist at Stifel Nicolaus, wrote in a client note. "Additionally, the fear from here is a continued back and forth, escalating trade penalties on both sides with a further negative impact on growth."
Given it's in the best interests of both China and the U.S. to avoid cranking up the tit-for-tat tariffs, Michael Arone, chief investment strategist at State Street Global Advisors, believes the posturing won't lead to a full-blown trade war and that the equities market is underestimating the positive impact of tax cuts and increased government spending.
That said, "the biggest risk to the U.S. economy is if cooler heads don't prevail," Arone told CBS MoneyWatch. "You won't have commensurate growth to go with higher inflation, which would be a problem for the U.S. and the global economy," he said.
Dan Egan, director of behavioral finance and investments at online adviser Betterment, isn't losing sleep over the U.S. approach to global trade relations. "Brinksmanship and creating a lot of apparent drama is part of the negotiating style of the Trump administration," Egan said in a phone interview.
"It's the first interesting thing we've had happen in markets in awhile, 2017 was unusually calm and boring," said Egan, who noted that the return to a more normal level of volatility is giving investors sitting on the sidelines an "on-sale buying opportunity" for the first time since 2016.
Investors looking for areas insulated from the broader trade risks should consider small-cap domestic and technology companies, said State Street's Arone.