To those hoping for a quick resolution to the US-China trade war, Axios had some bad news earlier today, reporting that the trade feud is “likely to last much longer than originally thought — extending well into the second half of next year and perhaps beyond, experts say.” According to Axios, the main reason for the protracted conflict is that neither side is prepared to appear politically weak at home, and both are ready to absorb economic pain.

With few probable winners, the biggest losers would be farmers, users of steel, and consumers in the US, manufacturers of all types will see business leave to neighbors like Vietnam and Malaysia in China, while dampening economic growth in both nations and around the globe.

However, as the general manager of the Bank of International Settlements, Agustin Carstens warned, the greater risk is not how many points of GDP the rising tariffs will subtract from the US and China, but the growing danger to globalization itself, and on Saturday, Karstens delivered a scathing critique of rising protectionism, a not-so-subtle rebuke to Trump’s use of tariffs and trade talks to wring concessions from China, Mexico and many other countries.

Reversing globalization “could increase prices, raise unemployment and crimp growth,” Carstens, the former head of Mexico’s central bank, told fellow central bankers at the Jackson Hole annual economic symposium. Additionally, higher tariffs could (actually, just say would) drive up U.S. inflation and force the Fed to raise rates, driving up the dollar and hurting both U.S. exporters and emerging market economies in the process, Carstens said.

Protectionism also threatens “to unsettle financial markets and put a drag on firms’ capital spending, as investors take fright and financial conditions tighten,” he said.

“These real and financial risks could amplify each other, creating a perfect storm and exacting an even higher price”, the rotund central banker warned.

Alongside Carstens’ speech, the BIS released a research paper titled “Global market structures and the high price of protectionism” which that estimated that revoking NAFTA would mean a loss to GDP of $37 billion in Canada, $22 billion in Mexico, and $40 billion in the United States, with non-tariff trade barriers accounting for the lion’s share of the losses. Wages would also fall across North America, the research found according to Reuters.

The good news, is that as Bloomberg reported earlier, Mexican and U.S. negotiators have narrowed trade-pact differences in recent days and an agreement on bilateral trade may be announced as soon as tomorrow, with Canada expected to join trade talks once those have been resolved, but the overall future of NAFTA remains unclear.

The bad news is that last week, the United States and China ended two days of talks on Thursday with little progress as their trade war escalated with activation of another round of dueling tariffs on $16 billion worth of each country’s goods. According to Goldman Sachs, there is a 70% chance that Trump will levy an additional $200 billion in incremental tariffs over the next two weeks.

What is odd, is that despite the BIS’ dire warning, Fed Chair Powell and other central bankers have largely stepped around the effect of rising trade frictions on the U.S. economy and monetary policy, while signalling gradual rate hikes ahead. For now, they note that the impact of the tariffs themselves, and related currency gyrations in some countries including Turkey, are not slowing the U.S. economy, and therefore do not require a response.

Furthermore, while numerous business surveys indicate widespread concern about the impact of tariffs, the US economy has yet to be rattled by protectionism.

However, speaking at the final panel in the two-day meeting that examined market structures’ impact on inflation and other metrics that central bankers follow closely, Carstens warned that central bankers ignore trade skirmishes at their peril. And, as Reuters notes, “coming from a fellow former central banker who is now head of the bank for central bankers, the message may resonate.”

Additionally, Carstens highlighted the potential catalysts that could unleash the “perfect storm” he highlighted as the key risk resulting from the interaction of real and financial risks, namely: the trillions in outstanding dollar-denominated debt – whereby a dollar-shortage threatening to cripple international trade – and the growing risk of currency wars: 

Consider that non-US banks provide the bulk of dollar-denominated letters of credit, which in turn account for more than 80% of this source of trade finance. The Great Financial Crisis highlighted the fragility of this setup, since non-US banks depend on wholesale markets to obtain dollars. Ten years on, we should not forget how the dramatic fall in trade finance in late 2008 played a key part in globalising the crisis. Any dollar shortage among non-US banks could cripple international trade.

On top of that, trade skirmishes can easily escalate into currency wars, although I hope that they will not. As we saw earlier with Mexico, imposing tariffs on imports tends to weaken the target country’s currency. The depreciation could then be construed as a currency “manipulation” that seemingly justifies further protectionist measures. If currency wars break out, countries may put financial markets off-limits to foreign investors or, on the other side, deliberately cut back foreign investment, politicising capital flows.

In addition, we must be mindful of long-observed knock-on effects from tighter US monetary conditions, given the large stock of dollar borrowing by non-banks outside the United States, which has now reached $11.5 trillion.

His conclusion: “Policymakers in advanced economies should not shrug off the growing evidence that abrupt exchange rate depreciations reduce investment and economic growth in emerging market economies. This has implications for everybody, in that weaker economic activity reduces demand for exports from advanced economies.”

“In the long term, protectionism will bring not gain but only pain,” Carstens said, echoing a familiar talking point of establishment economists. “Not just for the United States, but for us all.”

He may be right, but as long as the US stock market continues to ignore the growing danger of this pain, and hits new all time high, there is zero probability that the Trump administration will change course.