Op-Ed: Is Trump walking past China’s $350 billion 'win-win' deal?

Flags of the U.S. and China fly along Pennsylvania Avenue in Washington, D.C., on Jan. 17, 2011.
Andrew Harrer | Bloomberg | Getty Images
Flags of the U.S. and China fly along Pennsylvania Avenue in Washington, D.C., on Jan. 17, 2011.

Beijing's "win-win" concept of U.S.-China relations should be tested to reduce, and eventually wipe out, America's $350 billion trade deficit with China.

Depending on the pace of the action, that would — quickly — do three good things for America: (a) It would rev up economic growth by reducing half-a-trillion-dollar annual trade deficits, (b) it would stop, and reverse, the unsustainable progression of American net foreign liabilities ($7.9 trillion at the last count) and (c) it would open the way to more constructive dealings with China.

There is no diplomatic novelty here. China's "win-win" approach to bilateral ties with the U.S. has been on the table ever since President Barack Obama hosted the Chinese President Xi Jinping at Sunnylands, California, in June 2013. On that occasion, the Chinese leader spoke at length about his dedication to China's "dreams of economic prosperity, national renewal" and a "win-win" cooperation with America.

At the time of that meeting, China was already a big and decades-old winner in economic exchanges with the U.S. Washington, however, chose not to dwell on that at Sunnylands, even though America's huge, $318.7 billion trade deficit with China in 2013 accounted for nearly half of its total trade gap.

Xi must have greatly appreciated that extravagant magnanimity. So, in spite of Washington's attempts to contain and isolate Beijing — with pivots to Asia and TPP trade agreements — Xi remained committed to his "win-win" idea of U.S.-China relations.

Stopping the losing streak

Two weeks ago, for example, Beijing's high-ranking emissary came to Washington with a message of "non-conflict, non-confrontation, mutual respect and win-win cooperation." And then, last Wednesday, while the U.S. was putting up a powerful missile defense system near China, the Chinese Foreign Minister Wang Yi referred to a "consensus" between Xi and President Donald Trump to "follow the principle of … win-win cooperation," emphasizing that there was "no reason why China and the United States cannot become excellent partners."

Indeed, just think for a moment what a savvy deal maker like Trump could do with this.

For starters, it's clear that America's $350 billion trade deficit with China in 2016 is no winner for the U.S. economy.

Worse, last year's deficit is just a small part of America's red ink river with China. Since Xi took the helm in Beijing in March 2013, China got out of its U.S. trade a whopping $1.4 trillion surplus.

That $1.4 trillion went straight into China's swelling net foreign asset (i.e., creditor) position, while the U.S. got an equivalent surge in its net foreign liabilities.

Guess what Trump might say about that in his finest New York vernacular.

The whole thing looks like a colossal "winner-takes-it-all" sweep (fancy the eponymous song to go with that?). Some may even wonder whom Beijing is kidding with its constant incantation of the "win-win" mantra.

So, let's have a go at this. It's by no means the proverbial slam dunk, but it could be, at a minimum, a great moment of truth for China's real intentions. And, who knows, with a bit of luck, it could also be that Trump is knocking on an open door in the Great Hall of the People at the Gate of Heavenly Peace.

It is at that highly symbolic venue that a policy paper of the National People's Congress (China's parliament), currently in session, announced last week that the U.S. remained Beijing's most important foreign partner. And that is despite acute security problems in the East and South China Seas and on the Korean Peninsula.

Do a pasodoble with China

The U.S. here has a strong hand to play. Let me explain.

The logic of China's "win-win" syntagma runs along the following lines: Since we (Washington and Beijing) cannot destroy each other without destroying the humanity — and no sane person would want to do that — we might as well work together by respecting our core national interests.

In the glory days of Washington neocons, seeking a "full-spectrum global dominance," anybody paying attention to Chinese "win-win" talk would have been a "panda hugger" and "wet noodles."

Luckily or not, neocons are now hibernating, and Trump's foreign policy platform says that "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."

So, suppose Washington tells Beijing it is ready to play the "win-win" game and then brings up decades of its "lose-lose" massive trade deficits with China. The Chinese would be on the spot, wouldn't they? Springing for British-style opt-outs to say that the "win-win" offer does not apply to trade would be a deal-breaker and an unbearable retreat for a country that wants a "great power" global condominium with the United States.

But if Beijing accepts — as it probably will — to correct the trade problem, America's CEO should set the terms for a quick action with China's president. The issue is too important and the volume of bilateral trade — $580 billion — is so huge. Technical or, heaven forbid, multilateral forums should not be allowed anywhere near the key parameters of such a new trade agreement with China. The heads of state should set the marching orders.

Investment thoughts

Being consummate practitioners of realpolitik, the Chinese know that their excessive trade surpluses with the United States are unsustainable. They realize that the current situation is not in their interest, because it constitutes a serious threat to their most important strategic relationship. Unlike the Germans, whose chancellor, according to German media, will be talking about retaliation in Washington next Tuesday to defend her $65 billion trade surplus with the U.S., Beijing seems open to a "win-win" business dialogue that will not violate the rules and practices of international trade.

A substantial improvement in the external sector of the U.S. economy (30 percent of GDP) would provide a strong impetus to demand, output and employment — a kind of stimulus that would also reduce budget deficit and public debt, without revving up inflation (a trade-driven dollar strength would be a powerful inflation dampener).

Trump has very little time to produce such a result. The immediate run-up to his do-or-die midterm exam (Congressional midterm elections) is less than a year away.

The central message is this: For quick and important results on trade and global security, the president should focus on China.

(Europe should take a back seat for now, and until it sorts out its problems: British exit from the EU; watershed Dutch, French and German elections; unstable caretaker governments in Italy and Spain; EU's widening east-west and north-south fault lines; unsavory Nazi invective; etc. Stepping into this minefield would be an unwise waste of time and money this White House does not have.)

If it is true that Trump is "maniacally focused on his agenda," he should stay home and delegate glad-handing European trips to his cabinet members. Also, the irrelevant G7 photo-op can be done on the sidelines of the very important G20 economic summit in Hamburg next July.

The results-oriented policy focus should remain on (a) a quick trade action with China, (b) sound (preferably deficit-neutral) fiscal policy, (c) corporate tax reform to promote productivity-enhancing business investments, (d) infrastructure rebuilding and (e) affordable healthcare and education to mend the country's flailing and unproductive human capital.

These are the questions dominating daily market quizzes of the Trump rally. The Fed is also kibitzing, ready to jump in and kill the joyride if the White House makes a wrong move.

Markets are expecting nirvana because Trump offered an exalting and long-overdue America First agenda.

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