Many investors and economists have viewed the buildup of tariffs as a temporary annoyance that would dissolve ahead of the U.S. midterm elections in November. Their logic was that the two countries would not risk the economic damage of a prolonged trade war.

However, that is not how it is playing out.

“There is quite a lot of talk now that this is going to be a permanent new situation, that we are heading for a new cold war,” Patrik Schowitz, global strategist at J.P. Morgan Asset Management, told CNBC. “So, I think people are starting to price in the worst possible outcome.”