After four hours of exactly that kind of bruising talk, China's President Xi Jinping took President Obama for an evening stroll around the West Lake in Hongzhou during the G20 summit last September. They then set down for a cup of long jing (dragon well) – a delicate green tea – to share a convivial moment that included Mr. Xi's interest in his American guest's daily exercise routine.
Who knows what a stroll in Florida's balmy evenings might produce. Give it a chance.
Two, even if some headway is made toward a rapprochement with China, Mr. Trump should harbor no illusions about easy trade agreements to follow. Russian dealings with China show that Beijing will mercilessly push its negotiating advantage even with an apparently trusted strategic partner and a sole supplier of badly needed sophisticated weapons.
Three, it follows then that Washington has to weaken Beijing's negotiating trade position. That will be very tough because we have made China our largest provider of imported consumer products. We would, therefore, have to bring back, or modify, some of our strategically important manufacturing operations in China. By doing that, the U.S. would also cut off the free-flow of our technology transfers that are part of Sino-American joint ventures. Changes in the U.S. corporate tax system are the main instruments to conduct that process.
Four, bilateral investment regulations with China are another item on our trade agenda. Beijing is on an overseas shopping spree because it is recycling the bounty – an estimated $314 billion this year - earned on its net exports of goods and services. The balance of payments has to balance – a current account surplus must equal a capital account deficit.
Mr. Trump's intention to focus on the economy is a cause for cheer, even though we don't know how he will pay for a vast spending program he wishes to implement. He is inheriting a soaring budget deficit (somewhere between 3 and 4 percent of GDP) and a gross public debt of $19.8 trillion (106 percent of GDP).
Improving the U.S. trade balance by generating more export sales could greatly help Mr. Trump's efforts to revive the economy's growth dynamics. That's where America's economic pivot to Asia comes in. But in such a vitally important strategic move, "the art of the deal" should be tested by trading smarts rather than empty threats of trade limitations and hints of a military confrontation of nuclear-armed states.
Our trade deficit with a moribund EU economy is partly a cyclical issue, but toting up half-a-trillion dollar trade bills with Asia – the growth champion of the world economy – is a serious structural problem that might remind you of Mr. Trump's campaign scream: "They are eating our lunch."
Mr. Trump will have to stop that by (a) improving access of U.S. businesses to overseas markets, (b) restoring the growth of U.S. manufacturing industries through tax changes, labor market policies and infrastructure investments, and (c) fighting Asian (and European) freeloaders by insisting on international rules of trade adjustment.
India is offering an interesting entry point in this economic rebalancing to Asia. But get this: India's PM Modi just returned home from a three-day visit to Japan last week. Delhi and Tokyo have signed 10 multibillion dollar deals in energy, transportation, space technology and agriculture. Having pocketed a big paycheck, Japan's prime minister will be asking Mr. Trump in New York next Thursday for America's support (involving U.S.finances and military assets) in Tokyo's confrontation with China.
Meanwhile, Mr. Trump is sending signals that his large spending programs won't be good for bonds. But he is floating a promise that equities and commodities could be great money spinners.
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