By CCN.com: As the U.S.-China trade war intensifies, and with both sides threatening to take ruthless measures to place even more pressure on each other’s economy, the Dow Jones and U.S. stock market at large have suffered vicious declines on Wednesday.

Dow Collapses as Investors Flee Risky Assets

Heading into the mid-afternoon, the Dow had plunged more than 250 points, bringing the DJIA’s weekly losses to 500 points after just two trading sessions.

The Dow’s brutal shellacking was triggered investors fleeing riskier assets and piling into secure, stable bonds such as the U.S. Treasury note, fearing a stock market slump.

The benchmark 10-year Treasury note’s yield has dropped further to 2.226 percent according to The Wall Street Journal, indicating that the pressure placed on the international economy by the trade dispute has left investors scared to remain in stocks.

Will Dow’s Brutal Slump Continue?

Hu Xijin, the editor-in-chief of English and Chinese editions of the Global Times, has reported that local sources say the Chinese government is considering cutting off rare earth exports to the U.S.

Rare earth metals are utilized by many major technology manufacturers to create crucial infrastructure that is necessary to produce high-performance devices.

Elements that include gadolinium, lanthanum, cerium, and promethium are key in the creation of cancer treatment drugs and smartphones, and China accounts for around 70 percent of the global production of rare earth metals based on The Guardian’s report.

“Based on what I know, China is seriously considering restricting rare earth exports to the US. China may also take other countermeasures in the future,” Xijin said.

As the world’s single largest distributor of rare earth materials, cutting exports to the U.S. would also have a negative impact on the stability of mining firms in the domestic market of China.

But, the consideration of cutting rare earth metals by China indicates that the government foresees a long-lasting trade dispute. The mere projection of extended trade conflict could fuel uncertainty in the global equities market.

The Dow Jones, the SSE Composite, and every other major stock index could see a decline in momentum in the near-term as both sides prepare for further actions and potentially impose more restrictions.

Xijin added:

“US crackdown on Chinese companies including Huawei is no longer like a trade war. The US is shifting from protecting its interests to destroying China. It increasingly resembles air striking Chinese high-tech companies. China is mulling qualitative change in countermeasures.”

Why Some Investors Remain Optimistic

The Federal Reserve has been consistent in resisting calls to cut its benchmark interest rate. However, as strategists begin to suggest the possibility of an interest rate decline amidst intensifying tension between the U.S. and China, some firms see an opportunity in the equities market to reallocate to stocks.

Chris Cordaro, chief investment officer at RegentAtlantic, told The Wall Street Journal that the trade dispute would lead the U.S. economy to slow down in the near-term. Nevertheless, he added that a drop in the benchmark interest rate could alter the trend of the Dow Jones and the rest of the U.S. market.

“[The trade war] has caused the economy to slow and is going to continue to cause the economy to slow,” Cordaro said, adding “if interest rates are declining again, the relative expected return of stocks versus bonds keeps getting more attractive.”

With other indicators like the CBOE market volatility index demonstrating a clear rise in uncertainty amongst investors, strategists generally expect a high level of volatility to hit Wall Street in the weeks to come.

Xijin, who has emphasized that the domestic audience of China is not attracted to the approach of the U.S. in dealing with the trade talks, said that he believes there ultimately will be a deal.

“I’ve been constantly asked by Chinese investors if a trade deal can be reached. My answer: I believe ultimately there’ll be a deal, but currently there’re increasing factors that make the process stormy. For now, neither side is exhausted completely. The losses aren’t big enough,” he said.