In a trade war, both sides lose wealth, and this is why economists and policymakers have traditionally considered them to be losing propositions.

China, which is run by rational technocrats working with long time horizons, seems to believe that in the end, the United States will come around to the view that a long-term trade war will only make both sides poorer.

However, Chinese policymakers appear to have misunderstood new dynamics in the U.S.

Chinese policymakers seem to take it as an article of faith that free and fair trade increases wealth for all parties. What they may be failing to understand is that this belief no longer has solid support in the United States.

U.S. President Donald Trump appears to not actually care if his country takes an economic hit over the short and medium term in a trade conflict, as long as his country's economy becomes disengaged with that of China.

He seems to have come to the conclusion that since years of negotiations over trade concerns have never borne fruit, they never will.

Seeing China as an economic and strategic rival, Trump and his advisors have decided to start cutting ties. It appears that his tariffs do not aim to pressure China into adjusting its policies, but rather aim to make manufacturing in China too risky for international and especially U.S. firms. He wants manufacturing to move back to the United States. If that can't happen, his policies will at least drive manufacturers out of a country that he and his advisors essentially see as an economic “enemy.”

This point of view directly harms the interests of Wall Street and large manufacturers, who benefit from investment and low-cost production in China. To date, their support has been enough to protect the trade status quo, and China has relied on this support.

But there appears to be a sea-change going on in American politics, and China's leaders should not underestimate its importance.

The traditional free trade wing of the Republican Party has collapsed, and centrist Democrats no longer dare to stand up for free trade deals, as evidenced by the demise of the Trans-Pacific Partnership. This deal was devised by the Obama administration, but mainstream candidates could not support it in the face of popular opposition from Bernie Sanders and the ascendant “socialist” wing of Democratic Party on the one hand, and the rise of Trump's “America First” protectionism in the Republican Party on the other hand.

Cheap manufacturing in China and other countries has, of course, raised the standard of living for all Americans, greatly reducing the cost of items like computers, phones and televisions. However, these benefits are hard to notice for the average working person in the U.S.

What is obvious to working Americans, however, is that their wages are not going up, jobs are shifting to China and elsewhere, and the monetary benefits of free trade and almost every other policy, such as the recent tax cuts, are flowing to the richest of the rich.

Economists and policymakers may understand that China's trade policies did not directly lead to the wealth imbalance in the U.S. However, they can dishonestly (or in some cases honestly) direct public frustration toward China in order to achieve some of their own aims.

This all adds up to a situation in which the United States might not care much about averting a trade war with China, with some elements actively hoping negotiations fail and the economic relations between the two giants undergo a permanent shift with less interdependence.

We can see from Brexit how easy it is for demagogues to gain power by sowing discord to manipulate the general public into making emotional decisions that will overall harm the average person's economic interests.

China-U.S. trade ties could easily permanently fray if both sides don't listen to each other carefully. 

Trade talks are continuing, with President Xi Jinping announcing after a meeting on Friday with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin that "important progress for the current stage" was made after two days of talks.

Another round of talks will continue next week.

Xi said China stands ready to resolve differences and frictions in trade through cooperation and reach a deal that can be accepted by both sides.

The U.S. may feel it has more to gain by treating China as an enemy and severing trade ties — a process that has already started and is perhaps most vividly demonstrated by its efforts to convince its allies not to buy any Huawei 5G telecom technology. 

The current talks could be a chance for the two sides to save a trade relationship that has clearly made both sides richer.