A Vicious Cycle: How Retaliation Threats Fuel Market Panic

The U.S.-China trade dispute has entered a vicious cycle, where threats of action and promises of retaliation are feeding off each other to fuel a growing wave of market panic. President Trump’s tariff threat started the fire, and China’s vow to fight back has added a massive amount of fuel, creating an inferno of investor fear.
The cycle began with the U.S. escalation. The threat of 100% tariffs triggered the initial market crash, as investors priced in the direct economic damage of such a policy. This was the first turn of the wheel.
The cycle accelerated with China’s response. The commerce ministry’s declaration that it would take “resolute measures” confirmed that this would not be a one-sided conflict. This promise of retaliation introduced a new layer of risk: a tit-for-tat trade war with no clear endpoint. This confirmation of a two-sided conflict is what is driving futures markets down even further.
This dynamic creates a feedback loop of fear. Every aggressive statement from one side prompts a defiant response from the other, which in turn reinforces the market’s belief that a worst-case scenario is unfolding. This is why attempts by some U.S. officials to calm the market have failed; the cycle of threat and counter-threat is overwhelming any reassuring rhetoric.
Breaking this vicious cycle will require a significant and credible act of de-escalation from one or both sides. Until that happens, the cycle will likely continue to spin, with each rotation causing more damage to market confidence and bringing the global economy closer to a genuine crisis.