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Markets would thrive on better trade deals and a G3 détente

Ford trucks parked in a lot in 2008 when U.S. automakers were hit by plummeting auto sales.
Spencer Platt | Getty Images
Ford trucks parked in a lot in 2008 when U.S. automakers were hit by plummeting auto sales.

"Unemployed? Hungry? Eat your … " (Japanese car name brand)

That was a huge poster I saw on a dealership in Reno, Nevada, where, in the early 1980s, I rented a car (a Chrysler in deference to its legendary chairman Lee Iacocca) to visit some of the Mark Twain's country which was more beautiful than Hollywood sets.

Looking at the dignitaries attending President Trump's inauguration events last Friday, I thought that most of those Washingtonians were old enough to remember the trade policies that devastated our automakers – the mainstay of America's heavily damaged manufacturing sector.

Of all those in attendance, the former President Bill Clinton, who governed in the 1990s, probably understood better than most President Trump's words that "Washington flourished … politicians prospered, but the jobs left, and the factories closed … left our shores … with millions of American workers left behind."

We cannot blame our trade partners for that. America's economic and international trade policies must change. The human, urban and industrial wasteland left by our systematic half-trillion dollars in annual trade deficits – and their hugely depressive impact (up to an entire percentage point) on our economic growth -- cannot continue.

No allies, only interests

Those fearing a global trade war are betraying ignorance or bad faith – or both. There is nothing bellicose in the idea that the new administration wants to revisit some of the existing trade agreements, and to make sure that future deals are not harmful to American economic and strategic interests. Washington also intends to begin that review process by correcting our own fiscal and regulatory regimes that have led to massive off-shoring, with ensuing losses of jobs, incomes and damaging transfers (i.e., thefts) of our technologies.

My own fear is that – as in the past – our muddled up geopolitical thinking, and ferocious lobbies, will again get in the way of sound trade negotiations. Peremptory qualifications of "vitally important strategic relationships" are still perpetuating our structural trade deficits – an outcome our trade negotiators probably never wanted but were forced to concede in the name of "higher national interests."

Some countries we call our "closest friends and allies" think differently about these things. Here are a few recent examples.

Two years ago, President Obama asked these friends and allies to stay away from the Beijing-sponsored Asian Infrastructure Investment Bank (AIIB). His call was simply ignored; they rushed to sign up as AIIB's founding members.

These countries acted as Lord Palmerston (the British prime minister in the mid-19th century) advised: "We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow."

That's exactly what the U.K. did. It rejected Mr. Obama's request because London wanted to build a "golden era" relationship with China — a country the U.S. was trying to contain and isolate with its "pivot to Asia" and the Trans-Pacific Partnership (TPP) trade agreement.

The British Prime Minister Theresa May continues to tread the golden path to China. Two days after President Trump's election last November, she was sitting next to the Chinese Vice-Premier Ma Kai and telling the media how much she was "excited about the opportunities for expanding trade and investment" between the U.K. and China. Indeed, Beijing was waving a $5.8 billion check for property and infrastructure in the north of England.

Germany, our other "key friend and ally," is doing the same thing. Berlin also brushed aside Washington's demands, joined the AIIB and continued to build a Sino-German "dream team" to promote trade and investments. And, as these lines were written, Germany's Vice-Chancellor Sigmar Gabriel was advocating a strategic partnership with China.

Make G3 a core policy forum

The question is: How does this behavior of our key Western allies square with President Trump's apparent intention to militarily confront Beijing in the South China Sea — by preventing China's access to artificially built islands in contested maritime borders — and on problems of trade and investments?

The moral of this story is twofold. First, America does not need coalitions to defend its trade interests; its huge, homogeneous and high-income markets of 325 million consumers offer plenty of negotiating leverage with any trade partner. Second, coalitions and alliances imply hostile intentions, or serve as defensive instruments in the face of implacable adversaries.

But that, apparently, is not the world that China wants. Beijing seems to have concluded that nuclear-armed super states can only cooperate peacefully in a "win-win" mode – unless they are hell-bent on destroying the humankind.

Speaking last week at the U.N. European Headquarters in Geneva, Switzerland, China's President Xi Jinping said (as translated by the official Chinese media) that: "We will strive to build new model of major country relations with the United States, a comprehensive strategic partnership of coordination with Russia, a partnership for peace, growth, reform among different civilizations and a partnership of unity and cooperation with BRICS countries."

The idea of such a presumably cooperative model of international relations makes sense in the Sino-American context, where the current bilateral trade volume is estimated at $600 billion, with non-financial investment flows of $170 billion and China's $1 trillion holdings of U.S. Treasury securities.

Mr. Xi's statement of China's "comprehensive strategic partnership of coordination with Russia" also precludes the possibility of driving a wedge between Moscow and Beijing to isolate and confront Russia — a project that is apparently strongly advocated by America's key European allies.

Interestingly, President Obama seems to have had second thoughts about what he was doing to Russia. In his final press conference last week he said that "having a constructive relationship with Russia is in the interest of the U.S. and the world." The Kremlin would probably say "Amen," even though the belated soothing words came from a man Moscow accuses of having completely destroyed the Russian-American official ties.

Washington could probably re-establish an acceptable modus vivendi with Russia – and an effective G3 (U.S., China, Russia) policy forum -- by following strictly American interests. That would mean staying out of European quarrels and the continent's irreconcilable north-south and east-west divisions. Game-changing elections in the Netherlands (March 15), France (April 23-May 7), Italy (anytime) and Germany (late September) will seal Europe's fate.

Investment thoughts

"We do not seek to impose our way of life on anyone, but rather to let it shine as an example … for everyone to follow" is arguably one of the most significant sentences in President Trump's inaugural speech. That sets the stage for America First policies in a world where American blood and treasure would no longer go for violent "regime changes," coups d'état and color revolutions.

These are also the pre-conditions for a constructive G3 relationship and a world at peace.

Lowering the G3 tensions and establishing more balanced and sustainable trade relations would raise consumer and business confidence at a time when the U.S. and China are providing strong support to their economies. Markets can also count on ECB's robust stimulus measures to underpin the recovering euro area economies.

That will put one-half of the world economy on a steadily accelerating growth path, with rising employment, household incomes and corporate profits. It would be unwise to bet against that.

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