Could Trade War Lead to the Real Thing?

News that China and the U.S. will resume trade talks this week swiftly lifted markets. This follows the first meetings at the annual summer retreat of the Chinese Communist Party leadership at the beachside resort of Beidaihe. As might be expected, the main topic this summer has been the U.S.-China trade war, where it might lead and what could conceivably be done to avert it without an unacceptable loss of political face.

While we won’t have any real indication as to the tenor of the Chinese discussions or their conclusions for awhile yet, it’s worth thinking through where this trade war could take us all in the absence of effective diplomatic intervention. History tells us trade wars are easy to start and hard to stop, just like real ones. There’s a reason for that. The material stakes become greater as hostilities continue. And the domestic political cost of backing down gets higher and higher.