First it was steel, now a direct shot at China - US President Donald Trump is firing up for a trade war and it has rattled markets.
But the risk of protectionism sinking global economic growth is being overplayed by nervous investors looking for a reason to sell, says Pie Funds CEO Mike Taylor.
Since Trump started talking tough on trade, markets have been extremely volatile. The Dow Jones dropped almost 5 per cent in three days last week, before rebounding 2.7 per cent on Monday (Tuesday NZT) - the third largest single day rise in its history.
Trump announced last week that the US would put $60 billion ($82.4b) worth of tariffs on Chinese goods. This followed plans for a 25 per cent tariff on steel and 10 per cent on aluminum - although six allies, including Europe and Australia, have since been given exemptions.
Both announcements have sparked market sell-offs amid fears that the rhetoric will escalate to a full blown trade war.
It looks like markets have been using trade war talk "as an excuse", says Taylor, who argues that high valuations and fears about rising interest rates are still big factors behind the selling.
The US has a significant trade deficit with China - about US$375b - so there were legitimate issues for Trump to address, Taylor said.
But, as we have seen on numerous occasions since his election, the way he approaches issues is unconventional and creates uncertainty.
The proposed US$60b worth of tariffs was relatively small against the size of the deficit and may even get dialled back further, Taylor said.
China has responded with US$3b of tariffs. That has some US commentators downplaying the risk of escalation and suggesting China is doing just enough to save face.
Bloomberg's Tyler Cowen has said things were shaping up more like a "trade spat" than a trade war.
The relatively low US$3b response was "a sign that China is seeking reconciliation rather than escalation", Cowen wrote.
Taylor said the concern was that "it becomes a tit-for-tat between China and the US with countries forced to take sides".
The probability of that happening, at least in the short-term, looked low, he said.
Investors needed to take a step back and put the latest turmoil in the context of the market sentiment we had seen this year, Taylor said.
The VIX volatility Index and CNN's Fear and Greed Index show investors are very nervous right now.
But in the absence of really negative economic news and with another strong US reporting season expected in April there was room for some optimism, Taylor said.
"How many times have we seen markets react on a short-term basis - whether it be one day or a couple of weeks - to political events and then within a month it's, 'what event?'"
Meanwhile, China continues to retain a pro-globalisation outlook and has moved to cut tariffs on hundreds of consumer goods in the past few months.
"New Zealand has a strong relationship with China now. That China relationship is more important to us, export wise, than the US."