The economic conflict that has been simmering between the US and China has entered a new and dangerous phase. Without question, the world is closer to a full-blown trade war than it has been since the 1930s.

The issue now is whether the two sides can step back from the brink. So far, financial markets think the standoff is akin to the Cuban missile crisis of October 1962, the closest the US and the Soviet Union came to nuclear conflict during the cold war.

Seen this way, Donald Trump is John F Kennedy, Xi Jinping is Nikita Khrushchev and the goods that have just left Chinese ports on their way to the US are the Soviet missiles en route to Cuba.

That Trump’s decision to increase tariffs from 10% to 25% on $200bn (£154bn) of goods only applies to items leaving China after the measure was announced just reinforces the historical parallel. As there was time for Khrushchev to back down, so there is time for Washington and Beijing to do a deal while the ships are crossing the Pacific.

China has more to lose from a trade war. It exports far more to the US than it imports, the Chinese economy is slowing and there are only a limited number of additional US products to which tariffs could be applied in the event the tit-for-tat protectionism continues.

What’s more, China is more to blame for the hotting up of the trade cold war than the US. The US thought a 150-page draft agreement was the basis for a comprehensive deal, only to find Beijing had filleted the document of its concessions in contentious areas, such as the theft of US intellectual property rights.

Now China has met with firm US resistance, the expectation is Xi will back down – as Khrushchev did. Since Trump has no desire to see a meltdown on Wall Street, both sides will seek to avoid the mutually assured destruction a full-blown trade war would involve.

But what if the idea that sense will prevail is wrong? What if neither side is prepared to back down? Then, this is not 1962 but the summer of 1914, after the assassination of Archduke Franz Ferdinand. Trump and Xi – both self-styled hardmen with an aversion to backing down – are not Kennedy and Khrushchev but Kaiser Wilhelm II and Tsar Nicholas II.

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Politically, Trump is seeking to make capital out of the fact he is prepared to stand up to China. In contrast to the views of most economists, he thinks protectionism is good for the US and plays well in swing states.

For his part, Xi says he would prefer to talk, but he is prepared to fight if that’s what the US wants. Nationalism plays well in China, so Beijing says reluctantly it has no choice but to respond to Trump’s tariffs with equivalent action of its own. Washington retaliates by putting import duties on the $325bn of Chinese goods it has yet to target.

Beijing then starts to make it more difficult for US companies to operate in China and says that if Trump doesn’t back off, it will stop buying US treasury bonds. The White House says it has no intention of doing so and events are set in train that lead remorselessly to the doomsday outcome nobody wanted.