When creating a Smart Calendar Rule, you can decide whether to apply it for manual blocks as well.
For example: Let's say Listing A is set to block Listing B, and Listing B is set to block Listing C.
A confirmed reservation on Listing A will block Listing B's calendar, but since this is not a reservation, it can't trigger listing B's Smart Calendar Rules. Thus, Listing C's calendar won't get blocked.
To block both listings, add them individually to Listing A's Smart Calendar Rules.
Similarly, if Listing A is set to block Listing B, a manual calendar block on Listing A won't trigger Listing A's Smart Calendar Rules, and Listing B's calendar won't get blocked.