As the U.S. economy inches closer to a record-setting decade of sustained growth, experts are increasingly worried that a cliff — caused by a multi-front trade war —could be looming.

In recent weeks, President Donald Trump’s conflicts with China and Mexico have dominated headlines, spooked investors and contributed to a 7% downturn in the S&P 500 Index (^GSPC) since the end of April. Just this week, the Nasdaq (^IXIC) briefly sank into correction territory, as trade fears walloped blue-chip and tech stocks (^DJI).

The turmoil comes as the world’s largest economy approaches a major milestone. In July, the U.S. will have experienced 10 years of uninterrupted growth, putting the 2008 crisis firmly in the rear-view mirror.

Yet hovering in the background is a trade war that economists are warning is a real threat to the global growth outlook. Wednesday’s grim private payrolls data — which showed that a paltry 27,000 jobs were added last month — raised concerns that the hot U.S. labor market was starting to exhibit signs of wear and tear.

While it is difficult to predict how sustained trade wars will affect the global economy, new data suggests the resurgent manufacturing sector is already feeling the strains from tariff increases, which represent the most significant since the Ronald Reagan era.

The Institute for Supply Management (ISM)’s manufacturing index jumped to 60.2 in June, up from 58.7 in the prior month. Although demand remains robust, the data also revealed that supply chains are struggling — and that manufacturers are “overwhelmingly” concerned about tariffs imposed on steel and aluminum.

In the immediate term, “you’re going to see rising costs first, and after the rising costs then you’re going to start to see possible layoffs,” said Wayne Winegarden, a senior fellow in Business and Economics at the Pacific Research Institute.

“In the long term, you already have baked into the cake slower growth, slower employment, slower output because of the uncertainty,” he said. Winegarden added that the supply side of the manufacturing industry is in trouble, and that more tariffs could “push us over” into a recession.

According to the economist, the U.S. economy could benefit greatly from reaching quick and sustainable deals — especially since the jury is out on how long the current disputes with major trading partners will last.

US economy springing leaks?

A lot will likely depend on whether or not Republicans in Congress, many of whom have traditionally embraced free trade and free markets, have the political will to oppose Trump on tariffs.

Congressional Republicans have discussed a vote to block Trump’s new five percent tariff with Mexico, which would take effect on June 10, according to a report in The Washington Post.

Despite the mounting uncertainty, most of Wall Street thinks a deal will eventually get done, even if it takes longer than expected. Indeed, stocks staged a monster rally on Tuesday, with the Dow closing up 500 points on optimism that the U.S. and China would iron out a trade accord.

Ed Yardeni and Debbie Johnson of economic consulting firm Yardeni Research, said in a note on Tuesday that it was “sticking with our position that all sides in the various trade disputes need deals, so some will probably be struck.”

The sooner a resolution comes, the better: Capital Economics estimated on Monday that the U.S.-China trade dispute had shaved 0.2% off global GDP in the last year.

This itself has accounted for around a quarter of the global economic slowdown—growth has slowed from its peak of 4 percent in 2017 to 3.2 percent in Q1 of 2019, according to the firm.

Still, other indicators suggest both the U.S. and China are settling in for a long fight, even as their citizens and industries feel the pain. Rather than distributing all of the 14 million tonnes of soybeans bought from the United States in December, China has instead decided to stockpile about half of that number.

This represents a shift in strategy for Beijing, who before renewed trade tensions intended to distribute all of the soybeans in the coming months. It suggested that the Chinese government is not convinced there will be a resolution to the trade war before the next U.S. soybean harvest in October.

While the trade war is being felt in China, some economists think there might be too much complacency about the United States, where key indicators are starting to point downward.

“While we have seen many data points the past month supporting our view for an earnings recession and economic slowdown, none were as convincing as the Cass Freight Index report for April,” economists at Morgan Stanley wrote this week.

Noting that “there is no broader measure of economic activity for the U.S. than freight shipments,” the bank noted that the index plunged 3.5% year over year in April, “providing yet another important data point suggesting growth was slowing before the trade tensions re-escalated.”

Morgan Stanley added that “while the report failed to discern if this is merely a pause in the economic expansion, a retrenchment or the beginning of an economic contraction...the evidence is accumulating this is more than just a pause."

Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.

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