The major takeaway here is that China has more bullets in the chamber other than just putting a tariff on all US exports.
And even though China has more to lose on face value, an all-out trade war is an extremely negative sum game for all parties involved.
This would partially offset the effect from the tariffs placed on its exports.
However, it would also increase the debt burden on Chinese, and other Emerging Market (EM) dollar-based loans, which total over trillion in.
The Chinese could seek to significantly devalue the yuan once again, as the nation did starting in the summer of 2015.
When you add to this the Fed's reverse Quantitative Easing (QE) plan of selling 0 billion worth of Mortgage Backed Securities (MBS) and Treasures, you get a condition that could completely overwhelm the private sector's demand for this debt.
My research shows that this is one of the most hawkish Fed rate-hiking regimes ever.
It has raised rates seven times during this current cycle and is on pace to raise the Fed Funds Rate(FFR) four times this year and three times in 2019.
Hence, the next 25bp rate hike from the Fed in September could be enough to flatten out the curve completely.
Nevertheless, the resulting yield shock would be much worse than your typical inversion because runaway long-term bond yields are the last thing this massively overvalued equity market, which sits on top of record debt levels, can endure.
The Philippines market is down 23% YTD, Italian stocks are down 10% since May, and Argentinian stocks have plunged 33% YTD in dollar terms.