While volatility has risen, some breathing room remains on both sides before the tariffs’ bite is felt. China’s hike will take effect from June 1, and the newest round of US tariffs will hit goods send to the US on or after May 10, meaning that that they will affect imports that arrive in US ports two to four weeks from that date. Negotiations are likely to continue against this backdrop, and Trump said he would talk to Chinese President Xi Jinping at a G20 summit in late June. In the meantime, the latest development took a toll on markets: stocks fell in recent sessions - particularly sectors with direct exposure to the trade conflict, and US Treasury yields fell near six-week lows.

The US has suggested it might not be done playing its tariff cards. The Office of the United States Trade Representative said on Monday that it will call for public comment on a proposal to raise tariffs on “essentially all remaining imports from China, which are valued at approximately $300 billion.”

A similar US action - and Chinese reaction - roiled markets in September, after the US implemented 10 per cent tariffs on about $200 billion a year on imports from China, and China reciprocated with its own 5-10 percent tariffs on American goods.

What US-China trade war escalation means for investors: view from the Asia investment desk

"The trade war is indeed affecting market sentiment, which has been reflected in the market over the past few trading sessions. The weakness of China’s equity market and the Chinese currency may continue should sentiment deteriorate. The current bearish sentiment may actually present buying opportunities, provided that the trade war rhetoric does not affect the fundamentals, which we are closely monitoring.

“The impact from the trade war itself is relatively limited compared with the size of China’s GDP and the size of China’s recent stimulus measures. China has the ability to act by cushioning the trade war impact with policy tools - and an escalation of the trade war will lower the threshold for its willingness to act. Compared to 2018, China is more prepared as it is stimulating its economy through both fiscal and monetary measures.

“Onshore corporate bond spreads have stabilised while external funding costs have meaningfully eased. This time round, negative sentiment from a deteriorating trade war narrative does not coincide with a credit crunch. China also stepped up its measures to support private companies, which are a key driver of China’s GDP growth and employment. We could see policies further promoting liquidity flows to small and medium-sized enterprises.

“We could also see more helpful fiscal measures such as tax reductions and fee cuts. Additionally, we are also monitoring the trade war’s impact on inflation, which could be felt across both the US and China.” - George Efstathopoulos, Portfolio Manager

"For China, the impact of the US imposing a 25 per cent tariff rate on an additional $325 billion of imports would shave off around 1-1.1 per cent from China’s GDP for the next 12-18 months. In relation to the trade front, headline risk remains high while negotiations intensify, especially after the recent rally.

“Overall, the news related to trade protectionism will lead to pockets of volatility, although considering the supportive macro fundamentals, these will likely present themselves as potential buying opportunities subject to careful selection of issuers and securities.

“The intensified tariff retaliation would likely push China to look inwards, in order to maintain social and economic stability, which is likely to lead to more target easing. Recently, China’s National People's Congress confirmed that it will continue its monetary support and additional fiscal support, together with initiatives to boost domestic demand.” - Bryan Collins, Head of Asian Fixed Income

"There is no change to my earlier view that the China-US trade issue will dominate investor sentiment for some time, and the key is that the longer-term relationship between the two nations is likely to be blurrier, without clear collaboration or cooperation between them. In the shorter-term, we expect markets to remain volatile. It is not necessarily negative for investors, given the opportunity set that arises due to volatility, and we’ve been factoring its potential impact in assessing individual, stock-led opportunities.” - Jing Ning, Portfolio Manager