When it comes to tail risks that could cause WWIII, simmering tensions around Taiwan and Beijing's increasingly belligerent rhetoric probably rank as one of the most probable. Since at least the beginning of the year, President Xi has warned that 'reunification' between Taiwan and the mainland is inevitable, and hinted that Beijing wouldn't hesitate to attack any foreign power that tries to stop China. In response, Taiwan's President Tsai Ing-wen has insisted that the people of Taiwan would 'never' tolerate rule by the Communist Party, and insisted that the island's military would fight.

In the middle of this, Washington has okayed the sale of $2.2 billion in weapons, including missiles and tanks, to Taiwan. The decision outraged Beijing, which accused Washington of interfering in its relations with its wayward province.

Now - at a time when Peter Navarro said that trade talks are going "great" - Beijing is moving ahead with an unexpected escalation: China's Foreign Ministry Spokesman Geng Shuang said in a statement that Beijing intends to impose sanctions on American companies selling arms to Taiwan.

That list likely includes most of the major American defense contractors, particularly General Dynamics, the maker of the Abrams tank, and Raytheon, maker of the Stinger missile - two of the armaments being purchased by Taiwan.

CHINA SAYS TO SANCTION U.S. FIRMS INVOLVED IN TAIWAN ARMS SALES

U.S. GOVT IN `TOTAL DISREGARD' OF CHINA, MINSTER WANG YI SAYS

WANG YI: U.S. SHOULDN'T HAVE OFFICIAL RELATIONS WITH TAIWAN

The announce comes as Chinese Foreign Minister Wang Yi warned during a trip to Hungary on Friday that Washington must end its dealings with Taiwan, saying that continuing would be like "playing with fire."

Wang Yi

He added that no foreign power will be able to prevent China's reunification with its runaway province. Though the US has vowed to protect Taiwan should the mainland try to invade. Wang added that the US government is in 'total disregard' of China.

And just like that, the prospects for moving from trade war to military confrontation with Beijing have climbed considerably.