The government’s key composite index of economic indicators in March showing the state of the economy is “worsening” for the first time in more than six years comes amid growing economic concerns as the trade conflict between the United States and China cast dark clouds over global demand. The last time the same description was used was in January 2013 — right after Prime Minister Shinzo Abe returned to the government’s helm. Earlier the government claimed that the extended boom cycle on Abe’s watch had become the longest in postwar Japan. But the March index is yet another indication that the boom may have stalled and the economy may have entered a downward path — although there are mixed views of the longer-term trend.

Further judgment on the state of the economy aside, the robust demand in overseas markets that has supported Japan’s economy over the years appears to be in peril as the bitter Sino-American trade war fuels fears of a slowdown in China, which has curbed Japanese exports to the Chinese market and reduced domestic industrial output. Trade talks between Washington and Beijing broke down last week and both sides have resumed a tit-for-tat exchange of retaliatory tariffs.

As this year’s Group of 20 chair, Japan should exercise leadership to defend free trade against protectionist measures and urge the U.S. and China to pursue dialogue to resolve their trade disputes instead of engaging in tariff warfare that benefits no one. At home, the government needs to redouble its efforts to shore up domestic demand as the key engine of growth through structural reforms and deregulation to explore new avenues of growth — given that room for further monetary and fiscal policy measures appears to be narrowing after more than six years of Abenomics.

The 0.9 point fall of the coincident index of business conditions for March to 99.6 (against 100 in 2015) was the first decline in two months. Reduced demand for electronics devices in China has cut domestic output of semiconductor production equipment, while drops in vehicle shipments for the North American and domestic markets also contributed to the decline. A more comprehensive assessment of the economy will be given in a monthly report due later this month by the government, which claims the economy is on a moderate recovery path even after downgrading its assessment in March. A formal judgment on the state of the economy will be decided more than a year later following verifications by experts. There are views that given the tight job market and other factors, it is still premature to determine that the economy has entered a downward phase.

The slowdown in China has already begun to hurt Japanese businesses. Listed companies reportedly expect to post a 3 percent fall in their combined net profits in the year to last March — the first such decline in three years. And the prospect of a quick resolution of U.S.-China trade frictions appears dim. The Trump administration raised tariffs on $250 billion worth of imports from China from 10 to 25 percent last week even as Chinese and U.S. negotiators were holding Cabinet-level trade talks in Washington, and has announced plans to impose tariffs of up to 25 percent on $300 billion more goods — covering most Chinese imports to the U.S. market. China has responded with a 25 percent retaliatory tariff on $60 billion imports from the U.S., to take effect on June 1.

The Trump administration uses the hefty tariffs as a leverage to force Beijing to change what Washington views as unfair practices that are behind China’s huge trade surplus with the U.S., including violation of the intellectual property rights of foreign firms, forced technology transfers, currency manipulation and subsidies for domestic businesses. However, the heavy tariffs on Chinese goods could hurt U.S. consumers by raising their import costs, eventually harming the U.S. economy itself. The exchange of retaliatory tariffs also threatens the global supply chains that businesses have developed, forcing them to rethink of their strategy on cross-border operations.

At home, the Abe administration’s policy options to shore up the economy appear to be narrowing in the wake of its monetary and fiscal measures. The Bank of Japan’s unprecedented monetary stimulus program, which entailed massive asset purchases by the central bank and negative interest rates, has gone on for over six years. The administration has meanwhile reiterated that a consumption tax hike to 10 percent — already postponed twice since 2015 — will proceed as planned in October unless the economy is hit by a crisis to the tune of the one triggered by the 2008 collapse of Lehman Brothers. Administration officials said that position remains unchanged. It may be politically tempting to delay the consumption tax hike yet again, but the possible repercussions should be taken into account.