With President Trump now ruling out a negotiated deal with China, the prospect of a drawn out trade war is becoming a reality, affecting global growth and possibly ramping up inflation as the administration adds tariffs.

Trump on Monday was in Japan to negotiate trade with the government of Prime Minister Shinzo Abe, where he is using the blunt threat of tariffs on auto exports to pry open the Japanese market for things like American beef exports.

But the most attention was focused on Trump’s downbeat assessment of the talks with China. “I think they probably wish they had made the deal that they had on the table before they tried to renegotiate it,” Trump said at a press conference. “They would like to make a deal. We’re not ready to make a deal.”

That appeared to dash hopes that Trump would be able to resolve the remaining differences when he meets Chinese President Xi Jinping on the sides of the G10 meeting in Japan at the end of June.

Trump also said that tariffs on Chinese imports into the U.S. “could go up very, very substantially, very easily.” Trump has raised tariffs on $200 billion worth of Chinese imports from 10% to 25%. His administration is drawing up plans to slap 25% tariffs on another $325 billion in imports from China.

“I think sometime in the future China and the United States will absolutely have a great trade deal, and we look forward to that,” Trump said. He added that he didn’t believe that China could afford to keep paying tariffs, even though the tariffs are paid by U.S. importers of Chinese goods and often passed on to U.S. consumers.

Despite the implicit threat, the Chinese remain unmoved. Higher U.S. tariffs will have a “very limited” impact on China’s economy even if it raises levies to the maximum level, and would hurt the U.S. about as much, according to Guo Shuqing, head of China’s banking and insurance regulator.

Guo said China’s exports can be redirected to the domestic market because China is shifting toward a more consumption-driven economy. He also warned speculators not to short the Chinese renminbi currency, but did not rule allow Beijing allowing the currency to decline further as a way of keeping prices of Chinese exports low despite the tariffs.

The Wall Street Journal reported that economic growth is faltering, in part because of the trade tensions. Growth is expected to decline from 3.2% to 3% in the first quarter, which will be published Thiursday

“We’ve been expecting the economy to slow over the course of this year for some time, mainly because of domestic factors,” Andrew Hunter, senior U.S. economist at Capital Economics, told the Journal. “But I think the downside risks have really increased over the past few weeks with the escalation of trade tensions.”

Trump has arranged a $16 billion bailout to help farmers hurt by the collapse of exports to China. Other industries are likely to step forward now to seek aid for themselves.