Serious trade disputes generally don't end until the countries involved feel the pain. The problem is that pain may not become acute until some time after the damage has been done.
The Trump administration stepped up its trade feud with China on Friday, drawing a promise of retaliation from China. This followed an escalation of the U.S.-Canada trade spat after last weekend's Group of Seven summit.
So far, the impact has been muted. The economy is fine, inflation is in check, the stock market — despite volatility around some tariff announcements — is only about 3% below the record it set in January. With a few exceptions, such as lumber prices hitting a record after the U.S. imposed tariffs on Canadian wood, the rhetoric has so far been harsher than the reality.
Investors need to look beyond the economic data to see the first impacts of the trade disputes. Economists say there are three early indicators to watch. First is the market.
On Friday, stocks were down but only modestly, possibly because investors have decided Mr. Trump's threats are largely empty. But shares of companies especially exposed to trade such as Caterpillar and Boeing, were down more than 2%. In fact, market reaction can send a signal to the administration that it has pushed too hard.
Second is the voters, especially in communities where jobs are dependent on trade. So far that has been modest, but the new China tariffs could create more of a groundswell of public opinion.
Third is when companies start talking about disruptions in their businesses. There are hints of that happening. At an investor conference on Tuesday, for example, heating, ventilation, and cooling company Lennox International said uncertainty surrounding tariffs has led it to put on hold plans to expand operations in Mexico.
Official economic data provide very little insight into the workings of global supply chains, and as the disruptions Japan's 2011 earthquake and tsunami amply demonstrated, companies themselves often lack crucial knowledge about their own supply chains.
The danger is that by the time consequences of the recent trade actions become apparent, the economic impact could have already become significant.
Global markets could be in for a dull time in the next month as traders' attention turns from the trading pit to the soccer pitch. The reason? The quadrennial World Cup. Americans may get off lightly by failing to qualify, but an estimated 1 billion viewers world-wide tuned into the 2014 final.
BY JUSTIN LAHART