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Illustration: Lazaro Gamio/Axios

The United States' trade war with China is likely to last much longer than originally thought — extending well into the second half of next year and perhaps beyond, experts say.

The main reason: Neither side is prepared to appear politically weak at home, and both are ready to absorb economic pain.

Why it matters: The winners of a one-year or longer trade war without resolution are not clear, but here are some of the probable losers:

  • In the U.S.: Farmers, users of steel, and consumers. And in earning calls last week, U.S. retailers "were sounding the alarm" about yet another escalation of tariffs threatened by President Trump, reports Axios' Courtenay Brown.
  • In China: Manufacturers of all types will see business leave to neighbors like Vietnam and Malaysia, experts tell Axios.
  • For both: Economic growth will be slightly less next year, and — depending on other factors such as the psychology of stock and commodities markets — there is a small chance that part or much of the world tips into recession.

The background: Last week, the two sides boosted the tariffs to cover $100 billion in trade between the countries. As early as Sept. 6 — 10 days from now — the U.S. may substantially escalate, levying tariffs on $200 billion in trade, and Beijing is expected to strike back.

The aim: Trump says he is determined to get China to stop hacking U.S. commercial secrets and forcing American companies to disgorge their intellectual property to Chinese rivals.

  • But while that is the intellectual backdrop, politically speaking, neither Trump nor China's Xi Jinping can be seen publicly buckling under to the other.
  • And, for economic reasons, neither feels he has to. The tariffs are unlikely to inflict a killer blow. "No question it will be bad, but not calamitous" for the U.S. or China, says Adam Posen, president of the Peterson Institute for International Economics.
  • Adding to the time clock: On the U.S. side, Trump's most hawkish advisers actually want the talks to go on longer because they smell blood. They think the tariffs threaten the Chinese miracle, and want to wait for the suffering to start biting, report the WSJ's Lingling Wei and Bob Davis.

Most of the China experts who Axios spoke with dispute this thinking. Brad Setser, an expert on China's economy at the Council on Foreign Relations, expects only about a 0.5% hit to Chinese GDP next year should Trump, as he has threatened, escalate to tariffs on $250 billion of Chinese goods — or half its exports to the U.S.

  • In Alibaba's earnings call Thursday, Joe Tsai, the company's executive vice chairman, underscored this point. He said China's economic strength relies mostly on domestic demand and local investment, not exports. In terms of Alibaba's business, he said, "The world is a big place."

What's next: Ian Bremmer, president of the Eurasia Group, is forecasting the unfolding of a new Cold War next year between the U.S. and China, built on technology and foreign influence. "By the end of 2019, I suspect the biggest headlines on U.S.-China will be more focused on a changing global power balance than a direct trade war," he tells Axios in an email exchange.

  • But as things now stand, handicapping the conflict, Claude Barfield, a trade expert at the American Enterprise Institute, said that it comes down to one question: "Can the Trump administration hold out against a rising political reaction to negative fallout from tariffs versus Chinese economic imperatives and pressures stemming from a falling currency, capital outflows, and a slowing economy?"

The bottom line: There is an outside chance that the trade war spirals out of control, such as the enactment of "Buy American" procurement rules or China deciding to block U.S. ships in port, Posen said.

Get more stories like this by signing up for Bill Bishop's indispensable Axios China newsletter. 

Go deeper

22 mins ago - World

China's government issues warning after sending 28 planes over Taiwan

A J-11B fighter aircraft from China's air force flying over the Dafangshen airport in Changchun, China. Photo: STR/AFP via Getty Images

China's government issued a warning to "foreign forces" after Taiwan reported a record 28 Chinese military planes flew over the self-governed island's airspace Tuesday, per Reuters.

Why it matters: The statement and deployment of aircraft including fighter jets and bombers comes after G7 leaders issued a statement Sunday urging the Chinese government to respect human rights and calling on peace and "stability across the Taiwan Strait."

In photos: Life slowly returning to normal as restrictions lift across U.S.

Fireworks near the Statue of Liberty in New York City marking the end of New York State's pandemic restrictions in New York State and honoring frontline workers. Photo: Tayfun Coskun/Anadolu Agency via Getty Images

New Yorkers and Californians celebrated most COVID-19 restrictions lifting on Tuesday, as the two states became the latest to move toward fully reopening their economies.

The big picture: The pandemic has now claimed over 600,000 lives in the U.S., but vaccines have helped drive down the seven-day average to roughly 14,000 new cases and fewer than 400 deaths per day, helping most states to ease measures.

Southern Baptists reject push from right to elect Ed Litton as president

Photo: Win McNamee/Getty Images

The Southern Baptist Convention (SBC) rejected a push from the right in a divisive vote on Tuesday, electing a president who has prioritized racial reconciliation and approving a measure that rejects any view of racism as "anything other than sin," AP reports.

Why it matters: Ed Litton, as the new SBC president, will have the power to determine committee appointments, which can set the tone for the country's largest Protestant denomination. The SBC is comprised of 14 million members.

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