As trade war tensions continue to escalate, market watchers wonder if President Donald Trump has gone too far in an attempt to correct alleged unfair trading practices.

But former General Electric transportation CEO Bob Nardelli said the president is "a very reasonable individual."

"He's going to set an outrageous expectation," Nardelli said on "Fast Money" on Tuesday. "He's going to pull [the Chinese] to his side of the table. And I think when he sees some movement in a positive direction, then he'll come back over to a more reasonable decision point."

But investors were on edge Tuesday as the market fell, wiping out all of 2018's gains. On Monday, Trump threatened tariffs on $200 billion of Chinese goods. This is in addition to the $50 billion worth of tariffs already announced. China said it would counter with equivalent tariffs.

Trump's nontraditional negotiating style has long been chronicled. But Nardelli said that's precisely what makes it so effective: You never know if he's bluffing.

Nardelli said the market overreacted.

"We're assuming that we already have a trade war," he said. "And I think that's where the market was today. It was trading on rumors rather than on fact."

"The market reacts more violently on a rumor than they do on positive performance," Nardelli said.

In addition, Nardelli pointed out that the economy and earnings remain strong despite the potential tariffs.

"If you look at the recent CEO surveys, over half of them think the next 12 months is going to be better than the last 12," he said. "Over half of them think they're going to add more employees. Three-quarters of them said, 'Hey, we are where we are because of corporate tax rollback, repatriation and what we've seen in government regulations.' All, very, very positive."