This is how trade wars escalate: Trump hasn't even officially announced the steel and aluminum import tariffs, expected to be formally unveiled this coming week, and the rhetoric is already one of World Trade War I doom and gloom.

Hours after Trump tweeted on Friday morning that “trade wars are good, and easy to win,” European Commission President Jean-Claude Juncker said the bloc is prepared to respond quickly and forcefully by targeting imports of Harley-Davidson motorbikes, Levi Strauss & Co. jeans and bourbon whiskey from the U.S.

According to some, the preliminary EU retaliation was targeted in a way that would maximize political pressure on American leaders: Harley-Davidson is based in House Speaker Paul Ryan’s home state of Wisconsin, while bourbon whiskey hails from the state of Senate Majority Leader Mitch McConnell. San Francisco-based Levi Strauss is headquartered in House Minority Leader’s Nancy Pelosi’s district.

As Bloomberg noted, Juncker’s threat heightened the prospects of a global free-for-all, as the World Trade Organization said the potential of escalating tensions “is real” and the International Monetary Fund warned the restrictions would likely damage the U.S. and global economy. It also prompted speculation that in light of the widespread condemnation by US trading partners and allies, that Trump might step back and reconsider the sanctions. This in turn led to a late-day burst in the stock market.

That however appears unlikely: first, in a tweet Friday morning, Trump doubled-down and warned of more trade actions ahead, casting them as reciprocal taxes, a term he has used for imposing levies on imports from countries that charge higher duties on U.S. goods than the U.S. currently charges.

“We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!” Trump said in the tweet.

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On Saturday, Trump's resolve appears only to be hardened. For one, Trump's newly reincarnated foreign trade advisor said that the tariffs will likely be signed early next week. On Friday, Navarro also made clear that there wouldn't be any exemptions, for either Canada or other US allies:

“I don’t believe any country in the world is going to retaliate for the simple reason we are the most lucrative and biggest market in the world,” Navarro told Fox News Friday. “They know they’re cheating us. All we’re doing is standing up for ourselves.”

One look at the record US trade deficit, with both the entire world, and with just Europe, and one could make the case that he is correct.

And then, just to underscore that the market's late Friday assumption that Trump may change his mind on trade wars may have been woefully premature, on Saturday trump unleashed a pair of tweets making it clear that he not only has no intention of backing down, but is already planning counter-retaliation to Europe's retaliation.

In the first of two tweets, trump blasted that "the United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!"

The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more! — Donald J. Trump (@realDonaldTrump) March 3, 2018

More importantly, Trump followed that tweet with an explicit threat aimed at Europe, saying that "If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!"

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance! — Donald J. Trump (@realDonaldTrump) March 3, 2018

And yes, the trade imbalance is indeed big: in fact it has never been bigger.

Of course, that's just how the EU likes it, and once Trump counter-retaliates to Europe's retaliation, it will be Europe's turn next to retaliate once again, eventually resulting in the tit-for-tat "prisoner's dilemma" constant defection game taught in every Poli Sci 101 class, which also happens to be the worst possible outcome.

Incidentally, while many have been quick to slam Trump's strategy, at least one hedge fund believes that Trump is correct in his trade war stance. Here is Stephen Jen from SLJ Macro Partners:

The US is the least protectionist large economy in the world, while China is the most protectionist. In our note on this subject a couple of weeks ago, we pointed out that the US, based on data from the WTO, is by far the least protectionist nation in the world (with the exception of a tariff-free city state like Hong Kong) — far more open than Europe, Japan, and especially China. And it seems a bit hypocritical to us that more protectionist nations are complaining about the actions of the least protectionist nation. Excess capacity in China. China has half of the world's steel production capacity, much of which is excessive and unnecessary, even Beijing would admit. The 2008-09 RMB4 trillion stimulus in China further boosted China's industrial capacity, including in steel and other sunset industries. This has led to a situation where Chinese steel production had to be exported to the rest of the world at very low prices. Some in the US, not surprisingly, consider this 'dumping'. Further, both the US and the EU share the verdict that China is still not a 'market-based' economy, because of the large and persistent explicit and implicit government subsidies, and other forms of support from the public sector, that make Chinese products unfairly competitive. Why is Europe not held to the same standard as the US? Europe is complaining about the US' latest policy. Investors should know that Europe has already imposed two dozen anti-dumping measures against Chinese steel exports. What then is the substantive difference between the anti-dumping measures imposed by the EU and what the Trump Administration is doing? Is Europe less protectionist than the US? If Europe were so open, what is all the fuss about Brexit and the inability of the UK to access the European market?

So what happens if over the next week a trade war officially breaks out? The answer will depend on how US trading partners such as China, Canada and the EU retaliate, but one thing is clear: as GMO's Ben Inker wrote on Friday afternoon, for risk-assets this could be the start of a 40% (or more) crash in stocks: