Six months of wrangling over trade tariffs with the United States has wiped out about a fifth of China's stock market value and driven its currency down sharply. But those moves may have just been a downpayment on what is yet to come.
Shanghai's benchmark share index <.SSEC> is down roughly 22 percent since January, when U.S. President Donald Trump's first trade tariffs on solar panels were announced. It has fallen 9 percent since June 19, when Trump outlined his plans to tax a lot more Chinese imports than he initially proposed.
Tariffs on the first batch of $34 billion worth of Chinese imports kicked in on Friday. Beijing said it had no choice but to respond in kind by taxing a similar amount of U.S. goods coming into China. U.S. tariffs on another $16 billion of Chinese goods are due to go into effect in two weeks, Trump said on Thursday.
But Trump also raised the temperature much further by telling reporters that after the initial $50 billion of goods has been targeted with tariffs, Washington could add another $500 billion.
With Beijing indicating it will respond with tariffs on more U.S. imports or other corresponding actions of its own, the specter of a full-blown trade war risks sinking China's markets deeper into bear territory.
Initial market estimates of the impact of tit-for-tat Chinese and U.S. tariffs have been modest. A China central bank adviser, Ma Jun, said U.S. tariffs on $50 billion worth of Chinese goods will shave 0.2 percentage points off Chinese growth.
Market economists reckoned that every $100 billion of imports affected by tariffs would take away around 0.5 percent of global trade. And they have assumed a direct impact on China's economic growth in 2018 of 0.1-0.3 percentage points, and a somewhat lower effect on U.S. growth.
But the massive scale of Trump's suggested new U.S. tariffs - 10 times the initial $50 billion - would blow any such modest predictions out of the water.
"The bigger the size (of imports facing tariffs), the bigger the potential that the GDP impact is larger than a linear extrapolation would suggest," said Aidan Yao, senior emerging Asia economist at AXA Investment Managers in Hong Kong.
There were other secondary effects on confidence, investment and global supply chains to be considered, besides the impact on the economy through financial markets, wealth effects and corporate funding, he said.
"The risk is we underestimate the impact based on these simple back-of-the-envelope calculations."