Trump is playing a dangerous game with the US economy

"It tells me that there is much concern that we are heading for a significant global decline," Hooper said.

Trump has also kept open the possibility that tariffs on China will go up to 25%.

Consumer goods targeted

In addition to the direct effect of tariff rates, the escalation in trade tensions risks a significant blow to business confidence.

The on-and-back nature of the trade war makes it difficult for CEOs to plan for the future. Instead of hiring workers and opening new factories, many companies may decide to sit on the sidelines.

"Tariffman is back and more dangerous than ever for our economy," Peter Boockvar, chief of investment at Bleakley Advisory Group, wrote in a note to clients on Friday .

In an interview with CNN Business, Boockvar argued that the only thing keeping the United States out of recession is the strength of consumer spending.

However, Trump's tariff rates will affect a large number of consumer products, probably leading to higher prices for goods including clothing, footwear and electronics such as smartphones, laptops and tablets.

In 2018, 42% of clothing and 69% of footwear sold in the United States were imported from China, according to the American Apparel & Footwear Association.

"This is going to curb consumer spending," Boockvar said.

If the tariffs come into effect, Boockvar said there is likely to be a greater than 50% chance of the United States falling into a recession.

How will China react?

It is possible that Trump, spooked by market turmoil, is pushing back to his latest tariff threat. Another possibility is that the looming tariffs force Beijing to make enough concessions that both sides can claim victory. In both cases it will be a huge positive result for the economy.

But some observers fear Trump's increased pressure on China will backfire, prompting retaliation that deepens economic pressure.

"Trump's gambit will hardly work," Michael Hirson, Eurasia Group's practice leader for China and Northeast Asia, wrote in a note Thursday. "Chinese President Xi Jinping cannot afford the notion that he has been blackmailed into a deal by Trump."

A spokesman from China's Ministry of Commerce said in a statement that even if China does not want a fight, the country will "fight if necessary." The official said that China would have to "take the necessary action," but did not explain what the retaliation will be.

Beijing's alternatives include firing back at its own tariffs, limiting the supply of the rare earth metals on which the global technology industry relies, and devaluing the country's currency.

Hoping for the global downturn in the factory

Even before this week's trade escalation, the world's manufacturing industry was in a sharp decline.

Barclay's global industrial confidence index dipped into negative territory in July. Barclays said it is "another warning of an ongoing global industrial recession."

US factory operations fell to the weakest level in nearly three years in July.

Many blame the trade war for the global downturn in industry, but that may just be partly true.

Lakshman Achuthan, co-founder of the Economic Research Institute, said the factory decline began before the trade war broke out in the spring 2018.

"Trade war is completely negative. It is heaping on top of the recession," Achuthan said.

In other words, the United States is causing itself a shock at a time when the global economy was already at a disadvantage.

"People don't understand. We are slowly moving towards a window of vulnerability. A negative shock we thought we could endure becomes a recession shock," Achuthan said. "We're definitely in the recession."

Others doubt that the 10% tariffs on China will be very destabilizing because the Federal Reserve comes to the rescue with easier money.

"The risk of growth is somewhat small," said Aditya Bhave, senior global economist at Bank of America Merrill Lynch, pointing to the Fed's interest rate cut as a cushion.

Risk of a "feedback loop"

Some have speculated that Trump is escalating the trade war to get the Fed to listen to his requests for lower interest rates.

It would be a risky gamble because there is no guarantee that the Fed will trade, nor that the interest rate cuts will work.

"It simply makes no sense to risk a global recession to get the Fed to cut interest rates," Win Thin, global leader of currency strategy at Brown Brothers Harriman, wrote in a note to clients on Friday.

Bhave said it is possible Trump turned up the heat against China because he feels marked by the Fed's interest rate cut.

"We think the Fed is inadvertently encouraging a more hawkish attitude to trade," he said.

"There is a risk that we will get stuck in a feedback loop," Bhave said. "The Fed continues to cut interest rates, trade policy becomes more hawkish and the Fed runs out of ammunition to fight the next recession."