An escalation to end all escalations?

Another day, another escalation in the trade war with the US...or maybe not?

On Wednesday afternoon, US President Donald Trump announced he would raise tariffs on Chinese imports by a further 21%, effective "immediately."

• That brings the total amount of tariffs imposed on Chinese goods since February to 125%.
• When added to pre-existing tariffs on Chinese goods, effective average tariff rates on Chinese imports are now around 145%.

The kicker for stock markets: Trump also announced that he was rolling back the so-called reciprocal tariffs announced on April 2 on all other countries – except China.

• (Though the US will still impose an across-the-board 10% tariff on goods from all countries.)

The response so far from China: Muted.

• A Commerce Ministry spokesman said China's "door is open to talks."
• Meanwhile a Foreign Ministry spokesman said "China does not want a trade war, but we are not afraid of one."

Otherwise, there's been no major response so far.

• The China Film Administration (CFA) said on Thursday it will "moderately reduce the import volume of American films."

C'mon China, that all you got?

Our take: We suspect not.

• While Trump said the latest tariffs were "effective immediately," they look to have only been implemented today, April 10.
• China doesn't tend to retaliate until tariffs actually go into place, which gives them another roughly 24 hours to craft a response.

Get smart: Trump’s additional tariffs will have little practical impact, as tariff levels were already so high as to be prohibitive for trade in the vast majority of goods.

But that won't matter to Xi Jinping. The US is now very clearly singling out China, so we can expect a more robust response by Friday night in China.

• The only question is just how aggressive it will be.
• Will Xi and company be able to resist lobbing an escalatory bomb that will further provoke Trump?

The good news: Trump also said on Wednesday that he doesn't think he'll need to hike tariffs on China any further.

• So there's a chance that if China just matches US tariff rates at 125%, there could be at least a temporary end to the escalation.
• This is our base case for now.

What to watch: If China can hold some fire, we'll avoid a worst-case scenario that would see this going from a trade and tariff issue to a broader US-China confrontation that spills onto the financial and tech fonts.