The tariff standoff: the numbers rise on both sides

The trade conflict between the world’s two largest economies escalated through the first weekend of May, and the escalation carried the numbers that the economists had been modelling for months: the rates on the affected goods climbed on both sides, the official announcements raised the levies to the levels that had been described as the worst case, and the negotiations, such as they were, were conducted through the statements rather than across the tables. The standoff has reached the arithmetic that neither side had wanted to see applied, and the application is now the baseline from which the two sides will have to find a way back; the finding of the way back is the year’s largest economic question.

The escalation’s mechanics are the part of the story that the coverage has followed with the particular care that the numbers require. The tariff that the administration had raised in response to the earlier retaliation was answered, within days, by the partner’s own increase, and the increases, announced in the official language that the two governments use for such moves, carried the affected trade to the point where the goods in question effectively cannot move without the prohibitive costs; the trade that the two economies exchange, the machinery, the electronics, the agricultural products, the raw materials, now carries the rates that the models had described as the collapse scenario. The mechanics are simple and the consequences are large, and the combination is the standoff’s character.

The economic effects of the standoff are the ones that the markets and the households are beginning to feel. The prices of the affected goods have risen with the tariffs, the supply chains have begun the expensive re-routing that the previous rounds had trained them for, and the businesses on both sides have suspended the orders that the rates have made uneconomic; the economists’ estimates of the damage have been revised upward with each escalation, and the revisions have fed into the growth forecasts that the central banks and the treasuries are carrying into the spring’s planning. The standoff’s costs are being distributed across the two economies, and the distribution is the part that the politics on both sides will have to reckon with.

The negotiations’ absence is the part of the story that the commentators have found most striking. The two governments have maintained the channels that the earlier rounds had established, and the channels have carried, in the weeks of the escalation, the messages about the conditions and the red lines rather than the proposals for the settlement; the standoff’s logic, the pressure that the tariffs apply to the other side, has become the substitute for the diplomacy, and the substitution is the risk that both sides have accepted. The talks that would resolve the standoff would require the concessions that neither side’s politics has made available, and the unavailability is the standoff’s engine.

The way back from the standoff will be found, if it is found, through the stages that the trade conflicts of the past have established: the pause, the technical talks, the partial agreement, the phased removal of the rates. The calendar that the two sides have created, the deadlines that the escalations have set, provides the moments when the pause could be declared, and the moments will arrive through the spring and the summer; the politics on both sides will determine whether the moments are taken. The standoff’s numbers have risen on both sides, and the rising has reached the point where the costs outweigh the leverage, and the reaching is the condition under which the way back becomes negotiable; the two economies will find the way back, or they will learn the costs of not finding it, and the learning will be the year’s trade story in its most consequential form.