Does escalation mean the end of a US-China trade deal?
US has increased tariffs on $200 billion of Chinese goods to 25% and China has vowed to retaliate in response
However, this does not mean the end of a possible trade truce between the two countries. Both parties are still scheduled to talk things over later today and we're yet to hear of any news about the Trump-Xi phone call, if it even happens.
Nonetheless, there's still a possibility of both sides striking a compromise as the tariffs implementation by the US here is still widely regarded as a negotiating tactic or something to force China's hand. The key sticking point in talks right now is that China can't see eye-to-eye with the US on more structural issues, as highlighted here earlier in the week.
I reckon that we could see China offer some wiggle room - not on key matters though - but whether or not Trump will be agreeable to that, remains to be seen.
If Trump's idea is to make a scene so as to appear that China is seen caving in, then it is likely he will accept China's stance. From China's perspective, if they can avoid hard commitments on the structural issues mentioned, then they're happy to go along with it too.
Hence, there's still a chance for a deal to be struck but I wouldn't expect it to be a lasting truce between the two countries.
In fact, any deal is most likely going to be a watered-down version of what Trump would really want. So as soon as markets come to terms with that, expect market participants to greet the deal with cynicism and skepticism - resulting in a scenario where risk assets will see gains being tempered with.