Op-Ed: President Trump’s major Asian breakthrough

U.S. Defence Secretary Jim Mattis reviews an honor guard during a welcoming ceremony at the Defence Ministry in Tokyo on February 4, 2017.
Toru Yamanaka | AFP | Getty Images
U.S. Defence Secretary Jim Mattis reviews an honor guard during a welcoming ceremony at the Defence Ministry in Tokyo on February 4, 2017.

Rival power designs about throwing Uncle Sam out of Asia just got more difficult – or well-nigh impossible. And that crowd sloshing in the snow of ridiculously expensive Alpine resorts will have to eat its weeks-old bubbling about America's vanishing global leadership.

Here is what happened.

On a visit to Tokyo and Seoul last week, the U.S. Defense Secretary James Mattis (a) reaffirmed security guarantees to Japan and South Korea, (b) set the stage for an integrated American, Japanese and South Korean political, economic and military alliance, (c) opened the way for President Trump to knock heads together in Tokyo and Seoul to set aside their divisive historical grievances if they wanted Washington's umbrella and (d) told Pyongyang that our nuke operators knew the return address for a swift and devastating response if they ever saw a wrong move on their X-band radar.

That is a major breakthrough because no previous administration succeeded in binding these three countries in such a strong and integrated alliance. Japan was repeatedly blamed for scuttling these efforts by its allegedly defiant attitude toward Korean grievances.

Japan also wanted to make money in China while leveraging American protection in its territorial disputes with Beijing. As recently as 2014, a quarter of Japan's exports and a third of its foreign direct investments were going to the Middle Kingdom. But Tokyo would run for cover in Washington whenever the Chinese navy and air force would challenge Japan's presence on the Senkaku/Diaoyu islands in the East China Sea.

World's largest free-trade area?

At the same time, Japan was enjoying annual trade surpluses with the U.S. of $67-$70 billion. And just a week ago, the Japanese were telling Washington that they could not buy American cars because the steering wheel was on the wrong side. The last time I checked, there were superb right-hand driven Chevys and Fords in a number of Asian countries. And when I checked a few years ago, a bottle of Bud Light cost nearly three times the same offering of Asahi Super Dry in a five-star Tokyo hotel.

That has to stop. And it, apparently, will stop. Japan's Prime Minister Shinzo Abe is coming to Washington next Friday (Feb. 10) with trade and investment initiatives. But, true to form, whatever that is will probably fall far short of a trade deal Washington needs to address its excessive and structural trade imbalances with Japan.

We have an even worse trade record with South Korea. Since the free-trade agreement became effective in early 2012, our trade deficit with Seoul has nearly doubled to an estimated $30 billion in 2016. Maybe we have to take a look at that, too.

Building on last week's accords, Washington has an opportunity to conclude an appropriate trade arrangement with Japan and South Korea. That would cover nearly 25 percent of the global economy and would represent by far the world's largest free-trade area.

Such an agreement would attract other Asia-Pacific countries to permanently anchor a decisive American political, economic and security presence in that part of the world.

Washington's bargaining power with China would be greatly strengthened by these events in a negotiating process that is apparently already under way.

Indeed, while Secretary Mattis was setting up integrated Northeast Asian alliances, the U.S. National Security Adviser Michael Flynn was on the phone with China's State Councilor (i.e., Beijing's top foreign affairs official) Yang Jiechi to tell him – as reported by the Chinese government sources -- that Washington was "committed to strong bilateral relations, is willing to promote high-level communications with China, conduct mutually beneficial cooperation and handle sensitive issues in a proper manner."

According to the same Chinese sources, Mr. Yang (with a long career in Washington as a diplomatic official and later as China's ambassador) reciprocated by saying that: "China hopes the new U.S. administration will work with China and enhance bilateral exchanges at all levels, so as to safeguard the political foundation of the relations between the two countries and bolster their collaboration on bilateral, regional and global issues."

Got them by the wallet

I am providing these extensive quotes to show that, as short-handed as it now is, the U.S. diplomacy is working very effectively, and to reassure those (including the Germans) who think that the White House is in total disarray and leading the world to a Sino-American Armageddon.

In fact, intensive diplomatic work with China is reportedly going on with respect to (a) bilateral trade and investment issues, (b) contested territorial claims in East and South China Seas and (c) the inter-Korean crisis.

Beijing has been on notice for some time that Mr. Trump will not tolerate annual trade deficits of $350 billion (2016 estimate). An apparently important part of that deficit is created by American companies producing goods in China for export to the United States. How much of that manufacturing can be repatriated by adjusting the U.S. corporate tax code remains to be seen. Tough negotiating rounds lie ahead, but there is no indication that Washington and Beijing want an ill-advised and ruinous trade war.

China's maritime borders are even more sensitive problems because Beijing claims sovereignty over areas considered to belong to other countries. Freedom of navigation in some of the world's busiest sea lanes is also raised as an issue.

Some countries, like Vietnam and the Philippines, want to solve territorial problems in a direct dialogue with China.

But Japan refuses any challenge to its sovereignty over the islands it took as terra nullius (nobody's land) after it won the Sino-Japanese war in 1894, even though the Japanese maps from 1783 and 1785 show Senkaku/Diaoyu islands as Chinese territory. This issue was raised by Japanese leaders throughout the 1970s, starting with the prime minister Kakuei Tanaka, who talked about it in September 1972 with his Chinese counterpart, Zhou Enlai. On Mr. Zhou's wise advice, they agreed to "shelve" the issue for future talks. Prodded by the visiting Japanese officials in August 1978 about his view on contested islands, China's paramount leader Deng Xiaoping repeated Mr. Zhou's recommendation, saying that "we should not touch it now … we might fail to achieve an agreement on this issue for several decades."

Interestingly, the U.S. is not taking any position on sovereignty issues, but Washington is treaty-bound to defend these islands because they are administered by Japanese authorities.

On North Korea, Mr. Trump is saying "over to you China," because the Pyongyang regime survives thanks to massive help from Beijing. At the same time, Washington is strengthening the military alliance with Japan and South Korea, installing the missile shield – a huge problem for China – and preparing upgraded, large-scale war games with South Korea next spring.

Investment thoughts

Tokyo's alleged unwillingness to sort out its legacy problems with Seoul is thought to have been the main obstacle to an American-led, tightly integrated tripartite military alliance with Japan and South Korea. That serious security lapse is also blamed for the failure of Washington's pivot to Asia to challenge China's widely suspected intention to dominate the region.

Mr. Trump did things differently; he got Japan by the wallet, raising trade issues and threatening the Japanese automobile manufacturers. That turned things around. He now controls the three countries' military pact, presents China with a united front of unmatched firepower and an alliance of highly developed economies representing a quarter of the global demand and output.

Meanwhile, the Sun Tzu "Art of War" disciples are calmly focused. They are trying to figure out how to play with the brash New Yorker who wrote a book about his own art, and who perfectly speaks an unemotional, no-nonsense, "show me the money" Chinese vernacular.

I suspect that – for now -- the Chinese will seek negotiated solutions, fully convinced that the time is on their side, and that they will easily win the economic contest with the U.S.

So, it all comes back to the economy. That will be the ultimate test of "Making America Great Again." If properly managed, America's fabulous economic engine will remain second to none. And the wise strategy could well be to harness the vitality of Asia's two-thirds of humanity for a thriving America at peace with itself and with the rest of the world.

Follow CNBC International on Twitter and Facebook.