The tariff war is going into the 2nd phase: U.S. vs. China. Before U.S. market opens tomorrow, I expect China will increase tariff on U.S. goods to 125%. There are some reports that China is evaluating a stimulus package, but that is uncertain yet.
In the next 90 days, we will see U.S. negotiates with all other countries and regions, tries to block China from a new world trade organization, and tries to implement a worldwide tariff on China goods. During this process, U.S. may take other measures including banning transhipment, delisting China stocks or ADRs, cutting off more technologies, pausing interest payments, or confiscating China assets. Those could be threats or could be implemented. China is likely to impose tariff on U.S. service revenues. There is a small chance that the trade war will escalate into a real war: China side believes its navy is getting close to the U.S. level and can protect its oil import, while U.S. side believes its navy is far superior. Well, most Americans don't know U.S. no longer has strong shipbuilding or repairing capability, which is why Trump is so eager to bring manufacturing back to the U.S.
Then the $700B question is: what will China do with its U.S. treasury holding? It is becoming a risky asset, even if we don't talk about basis trade. China already sold $50B two days ago, and it needs a place to spend its USD. With weakness in worldwide currencies, one plausible approach is buy physical gold and silvers. I am more on the silver side, since gold:silver is above 100 now.
Gold and silver prices are creeping up tonight. If we see China announces 125% tariff in the next 12 hours, this can escalate fast.