Trade face-off: Will Trump’s America back down first or Xi’s China?

That does not mean he is not under pressure. It only means that the politics of the United States is a lot more transparent. Both sides are under pressure. The next several weeks will be both a contest of which side can withstand greater pain and how effectively that pain is transmitted through their political processes.

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We saw a glimpse of that in the first week of April when US stock markets plunged and US Treasury bond yields jumped, causing a number of Trump’s billionaire backers to raise their voices against tariffs. The pain transmission mechanism was quite swift, perhaps causing Trump to pause the tariff rollout for 90 days. We can never be sure if the bond market forced the White House to hold its fire, but it is reasonable to accept that the destruction of a massive amount of financial wealth in a matter of days was a significant factor.

It is less clear if rising prices of consumer goods, especially consumer electronics, apparel, toys, home furnishings and automotive components, will result in similarly acute pain and rapid transmission. Firms have been hard at work loading up inventories and finding alternatives to Chinese suppliers. While there may be occasional sticker shocks, prices might not jump overnight.

The public narrative could defuse anger over pocketbook issues by focusing on political outrages—of which the Trump administration has triggered many—for months. The main pathway through which public unhappiness over prices finds its way to policy is electoral politics.

Incumbent senators and representatives are already getting earfuls, but since mid-term elections in the US are a year-and-a-half away, it might be a while before politicians feel enough pressure to start contesting Trump’s policies.

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I do not know enough about American politics to make confident assessments, so I asked some astute observers where the economic impact and electoral challenges for the Republican Party coincide. Here’s what I gathered.

Republicans will be vulnerable in Michigan, Ohio, Pennsylvania and Wisconsin because manufacturers in these states will suffer losses and lay off workers. If the slump in agricultural exports—both due to tariffs and cuts at the US Agency for International Development (USAID)—worsens, then Iowa, Nebraska and Minnesota will also pose challenges to Trump’s Republican Party, even in its strongholds. There are already signs that US farm incomes have been impacted, but it might be months before they find political expression.

Of course, stock and bond markets might well cry “Uncle!" in the coming weeks, way before consumers and firms, if they see the 245% tariff on Chinese goods begin to eat away at corporate earnings into the medium term. This kind of pain is sharp and those hurt are politically influential. We have already seen it play out this month.

That said, if Trump holds his line and tariff levels (and uncertainty) persist over several months, it is possible that consumers, firms, farmers and investors will all feel the pain simultaneously. If that happens, the effect will go far beyond a change in US trade policy.

What about China? The manner in which the US imposed tariffs and the accompanying orchestra portraying China as its big adversary have fuelled an already surging nationalist narrative in the People’s Republic. At times such as this, the first-order effect would be one where people rally around Xi Jinping and the Communist Party. This is ironic because Xi, more than any other person, is responsible for the policies that pushed the United States into this trade war.

In any case, economic pain is inevitable. It is all very well to argue that China exports a lot to countries around the world and so the impact of the tariffs imposed by the United States won’t be all that much. Yet, losing exports to a market that accounts for a fifth of China’s total and hosts the world’s richest customers will result in weaker revenues, smaller margins, wage cuts and job losses. Beijing can roll out subsidies to help firms tide over immediate losses, but it will need to be cautious because it cannot anticipate how long it will have to extend support and how deep it may have to reach into its pockets.

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How will this influence Chinese President Xi Jinping’s stance? Beyond the usual concerns about what a downturn means for his legitimacy as a leader, factional politics within the Communist Party of China and the remote possibility of public protests, we really do not know.

Beijing would be justified in assessing that Trump’s policies drive another nail in the coffin of US global hegemony, even if it means the Chinese economy will be damaged in the process. After all, it’s easier to recover economic ground than to resurrect a superpower.

It would appear that Trump will stand down before Xi does. I wonder if this is only because we know relatively more about the internal dynamics of the US, or what you see is what you actually get.

The author is co-founder and director of The Takshashila Institution, an independent centre for research and education in public policy.