New York: It could’ve been worse. It’s already priced in. Tariffs won’t derail global growth.

Wall Street arrived Tuesday to an escalating trade war and a market that doesn’t seem to care all that much. Yes, there was the now-common knee-jerk reaction to last evening’s announcement that the US will slap tariffs of 10% on $200 billion in Chinese goods. But in short order the yen rebounded, S&P 500 futures erased losses and Asian stocks rallied.

And even after China vowed to retaliate, US investors showed little signs of angst, with futures briefly paring gains before staying higher. What gives?

“Counter cyclical measures that are in place in the US economy, which is fiscal policy, is enabling the US economy to clearly outgrow the rest of the world," said Paresh Upadhyaya, a portfolio manager at Amundi Pioneer Asset Management, which manages about $89 billion. “So US capital markets remain robust. And a lot of foreign markets are taking their cues from the US."

It’s not that the latest escalation in the monthslong trade war is good news. It’s that there are several reasons investors kept their cool:

“The market had already largely priced in this round of tariffs," said Shahab Jalinoos, Credit Suisse Group AG’s global head of FX trading strategy. “The debate was about whether it would be 10% or 25%. The fact that it was just 10% is a relatively good outcome at this point, and suggests the more moderate members of the White House team are still functional. "

While China plans to match escalating US tariffs tit for tat, the real question is what Beijing will do once it runs out of goods on which to reciprocate-

The 10-year Treasury yield pushed above 3%, but its move of two basis points was muted. The dollar slipped versus major peers and held in against the yuan. Emerging-market stocks advanced.

Japan’s rally

Japanese stocks surged after a holiday on Monday. The Topix index closed 1.8% higher, the biggest gain since March.

“The market had anticipated the US would impose additional tariffs by the end of the month," said Hiroaki Mino, a senior strategist at Mizuho Securities Co. in Tokyo. “Trade frictions remain as a weight on the equity market, but the market is in the middle of digesting trade concerns and increasing expectations over Japanese corporate earnings."

South Korean equities were modestly higher as President Moon Jae-in arrived in Pyongyang for talks with North Korean leader Kim Jong Un. The Australian dollar, a risk barometer that reversed its 0.5% decline, sat at 72.16 US cents.

Chinese equities fluctuated in morning trading and then jumped amid expectations the government will take steps to offset the negative effect of US tariffs.

What now?

While China plans to match escalating US tariffs tit for tat, the real question is what Beijing will do once it runs out of goods on which to reciprocate, said Nick Twidale, chief operating officer at Rakuten Securities’ Australian unit.

“That’s where it gets interesting," he said. “As we start to hit levels where they can’t reciprocate in terms of tariffs, then they can turn to other measures to counteract this move from the US and one could be to allow the currency to depreciate further and possibly faster."

Plans to send Vice-Premier Liu He to Washington for talks are being reviewed, the South China Morning Post reported, citing an unidentified government official in Beijing.

“Of course, China’s response is critical. It could target $100 billion of US exports with an additional 20% tariff to respond ‘proportionately’," Nomura Holdings Inc. said in a report.

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