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Update 2:China has just made it clear that the relentless tit-for-tat trade war escalation isn't stopping any time soon:

  • CHINA SAYS TO HIT BACK IF U.S. ROLLS OUT NEW TARIFF LIST

  • CHINA MOFCOM SAYS U.S. TARIFF DECISION AGAINST MARKET RULES

  • CHINA WILL TAKE STRONG COUNTERMEASURES IF U.S. ISSUES NEW LIST

  • CHINA COMMERCE MINISTRY SAYS IF U.S. PUBLISHES ADDITIONAL IMPORTS TARIFF LIST, CHINA WILL HAVE TO ADOPT COMPREHENSIVE MEASURES TO FIGHT BACK FIRMLY: RTRS

  • CHINA COMMERCE MINISTRY SAYS U.S. THREATS ON $200 BILLION TARIFFS LIST DISOBEYS NEGOTIATION AND CONSENSUS REACHED PREVIOUSLY BETWEEN TWO COUNTRIES: RTRS

The only silver lining in all of this is that so far, China hasn't invoked the nuclear options: dumping FX reserves (either bonds or equities), or devaluing the currency. If Trump keeps pushing, however, both are only a matter of time. In fact, as we suggested last Friday, Russia's unexpected April liquidation of half of its US Treasurys may have been a market test and dress rehearsal for the real thing, when Beijing eventually starts selling.

US equity futures took another leg lower - The Dow is down 250 points from the close...

And Chinese stocks tumbled below 3,000 to their lowest since Aug 2016...

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Update 1: While US equity futures are languishing at the day-session lows (ready for the machines to ramp them back to green tomorrow morning), Chinese stocks are suffering with Hang Seng's China Enterprise Index breaking below a critical uptrendline...

And USTR has just issued a statement in support of Trump's tariff direction.

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Just minutes after the US Senate passed its ZTE-Deal-killing amended-bill, President Trump hit China with a potential double whammy as he directed the U.S. Trade Representative to identify $200 billion worth of China goods for additional 10% tariffs.

"Further action must be taken to encourage China to change its unfair practices, open its market to United States goods and accept a more balanced trade relationship with the United States," Trump said in a statement.

US Equity markets tumbled on the headlines erasing the day's exuberance rebound...

At the same time, China's offshore Yuan broke below its 200DMA...

The Dollar Index is down very modestly but 10y TSY yields dropped 2bps to 2.89%...

Further warning China that after these new measures are in place - on top of existing tariffs on USD 50 billion in Chinese imports -  punitive measures on another USD 200 billion of Chinese goods would go forward "if China increases its tariffs yet again."

"These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced."

Anyone who now claims that this is not a 'trade war' is kidding themselves - this is Trump's retaliatory trade tariffs due to China's retaliatory trade tariffs which were due to Trump's trade tariffs which he imposed due to China's non-fair trade.

As an ominous reminder,  Goldman recently warned  that...

 "it is unlikely that the White House can convince trading partners that tariff threats are credible without also convincing financial markets."

In other words, for Trump's trade negotiations to be successful, and for US trade partners to take a flip-flopping Trump credibly, the market has to crash.