Many economists, once optimistic for a U.S.-China trade deal, now lean towards skepticism one will happen soon

Some are even saying the world's two biggest economies are heading into an economic cold war that could last years.

If President Trump's full tariff threats are realized, it could cost a typical three-person family in the U.S. $2,200 annually in higher prices for goods, according to a Peterson Institute of International Economics estimate.

Many economists and stock market strategists are starting to bet that trade wars aren't "easy to win," as President Donald Trump famously declared in a tweet more than a year ago.

As April 2019 turned to May, most economists and other trade and investment experts were optimistic a trade deal could be reached between the U.S. and China. As the calendar approaches June, many now say their main working premise is that the world's two biggest economies are instead heading down a path to an economic cold war that could last years.

"We now take it as our base case that the 'deal' to end the trade war, which many market participants were sure was forthcoming just a few weeks ago, is now the tail risk" -- an improbable event that suddenly seems probable, wrote Carl B. Weinberg, the chief economist at High Frequency Economics, in a note Friday.

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Trade battle turned tech battle

Why the change of heart? Some shifts can be traced to developments this past week tied to technology.

Chinese state media on Friday accused the U.S. of seeking to "colonize global business" with moves this week that effectively cripple China's telecom giant Huawei - and potentially other Chinese tech companies - by mandating U.S. government approval for all corporate transactions in this country.

U.S. investors are already worried Beijing will eventually try to limit, or even choke off, American companies that both sell into its markets and manufacture products there, such as Apple and its iPhone. Apple stock, like the S&P 500 Index, is down for the month of May.

The escalation in the tech realm comes after trade talks fell apart in early May. Mr. Trump accused China of reneging on some parts of a deal and unexpectedly raised to 25 percent from 10 percent tariffs on Chinese goods and threatened tariffs on $300 billion more worth of good annually, effectively taxing every good imported from China.

"This is a close call, and without additional signs of progress over the next few weeks, implementation of the next round of tariffs on $300 billion of imports from China could easily become the base case," wrote Jan Hatzius, the chief economist at Goldman Sachs in a note to clients this week.

Price to U.S. households: $2,200 annually, by one estimate

U.S. companies pay those higher taxes, often passing them on to consumers. If Mr. Trump's full tariff intentions are realized, it could cost a typical three-person family in the U.S. $2,200 annually in higher prices for goods, according to an estimate from the Peterson Institute of International Economics' Gary Hufbauer.

That could be just the beginning. China is already using weapons beyond tariffs aimed at U.S. companies that want to sell into the fast-growing Chinese market and manufacture goods there. Those companies include Apple, Boeing, Caterpillar, Deere and other stalwarts.

The American Chamber of Commerce in China said Friday its members' operations are facing growing pressure. "The negative impact of tariffs is clear and hurting the competitiveness of American companies in China," the group and AmCham Shanghai said in announcing the results of a mid-May survey of nearly 250 companies, according to the Associated Press.

The escalations come ahead of a long-scheduled G-20 meeting of developed economies in Japan in June.

More tit-for-tat: The White House threatened to slap tariffs on countries that devalue their currency, and China signaled it may restrict exports of rare earth metals that are used in a wide variety of common electronics. These push up the odds of a protracted standoff, Raymond James analyst Ed Mills said in a note Friday.

Such moves give "no indication that G-20 meeting preparations are moving forward," Mills wrote.

"The risk of miscalculation is growing"

As U.S. markets sink, rhetoric is escalating. Each side says the other "has more to lose," Mark Haefele, the chief investment officer for UBS, wrote in a note to clients.

"When it serves his interest, President Trump takes tariffs off as quickly as he puts them on, so things can change quickly," Haefele wrote. "But we don't see the U.S. or China hurrying to reach a deal, and the risk of miscalculation is growing."

Another sign a long fight is likelier than a swift agreement? Mr. Trump this week also pledged andther $16 billion in federal aid to farmers. They are suffering from China's shutdown of its agriculture markets to U.S. exports like soybeans and corn, itself a response to Mr. Trump's first rounds of tariffs on imported Chinese goods last year.

Mr. Trump this month may have shifted strategy to downplay the appearance of economic risk and instead lean on a "tough on China" message, wrote Height Securities analyst Clayton Allen in a note this week.

"More farm aid adds to this narrative, and may suggest a shift in Trump's political calculus," Allen wrote. "[The move] to counter the impacts of a trade war are a clear attempt to shield Trump's political base from pain, and blunt the negative political impacts."

Clearing the plate for 2020 election

The White House also postponed a decision to impose tariffs on the auto industry, a move that economists have warned could cost tens of thousands of U.S. jobs. Steel and aluminum tariffs imposed last year recently were lifted for Mexico and Canada, clearing the way for Congress to vote on a new trade agreement for North America's three largest economies. Both moves set aside other skirmishes so Trump can focus on China, some analysts suggested.

"Increased activity to resolve pressing domestic issues by the White House and lawmakers potentially preview preparations for an extended U.S.-China trade rift." Raymond James' Mills noted.

China may prefer no deal rather than a bad deal, and is prepared to wait, HFE's Weinberg predicted.

"Beijing is prepared to accept the consequences of that for the economy," Weinberg wrote. "We expect the government to remain hunkered down at least until the 2020 election, with the specific goal of denying President Trump a plank to put into his election platform."