Stocks were pulverised and industrial commodities sank on the announcement of US tariff barriers aimed at China. China’s response was swift and uncharacteristically blunt, and investors rushed for safety, driving bonds and gold higher. While the sanctions may later prove a negotiating tactic the impact on Asia Pacific markets today will be dramatic.

Analysts are still working through the form of the tariffs, and exploring possible escalations. The 15 day delay in implementation and a 30 day comment period mean there is an opportunity for dialogue and a negotiated solution. A key question for markets is whether trade barriers are aimed only at China or if this is the first salvo in an as yet undeclared trade war.

Futures markets in major Asia Pacific markets are treading water 2-3% down on yesterday’s close. Fear that a trade war will choke global growth saw copper, nickel and crude oil pounded on London and Chicago exchanges overnight. Every base metal finished in the red. This resource focus may mean the Australia 200 index is most vulnerable today. A read on US manufacturing showed surprising strength but was overwhelmed by the White House announcement.

The US Volatility Index spiked in response to the news. However at 23.3% it is well below the February peak above 50%. Moves and countermoves from Beijing and Washington will likely drive markets, at least in the short term.