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Linking trade and geopolitics is a lose-lose for America

    • Don't mix things up: Consider trade issues on their own merits
    • Multilateral rules are fine, but use reciprocity to avoid serious trade injury
    • Only a strong economy will keep Washington as a global center of gravity

      There was a time in recent history when America produced a truly iconic car. In fact, that wild horse was so iconic that it was featured in one of the all-time motion picture masterpieces called "A Man and a Woman" ("Un homme et une femme"). If you have not seen the movie, you have most probably heard the Muzak piping in its theme song in some of your upscale boutiques and shopping malls.

      Judging by the passionate attachment of some of my friends to the original, dating back to the 1960s, the legend is still alive, even though, according to the purists, the car has gone through questionable model changes.

      President Donald Trump (L) and China's President Xi Jinping walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, April 7, 2017.
      Carlos Barria | Reuters
      President Donald Trump (L) and China's President Xi Jinping walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, April 7, 2017.

      Now that Washington is reported to be actively reviewing the North American Free Trade Agreement (NAFTA) that costs the U.S. $74 billion to $76 billion in annual trade deficits, I was just wondering how would that iconic American product fare in East Asia's booming car markets. After all, that fastest growing segment of the world economy has taken out of the U.S. a cool $1.7 trillion in the form of trade surpluses over the last four years. So, they owe us, don't they?

      Don't be so sure, my East Asian friends told me. I asked them to investigate the issue, and their response came with a warning: You might get electrocuted on the spot by the sticker shock because that American wild horse — if you can get it — will set you back for up to $135,000, and you will have to wait between three and six months for delivery.

      That price refers to the basic Ford Mustang model currently retailing for $25,185.00 in the U.S., with the manufacturer's promise to "sweeten the deal."

      Use the crowbar, if you must

      It is a fair bet to suppose that President Donald Trump had no idea of how much the U.S. car manufacturers were discriminated against when he extracted a commitment from the Ford Motor Company to build Lincolns in Kentucky instead of Mexico.

      And it is also quite plausible to assume that Ford did not throw the problem back at the president by pointing out rampant trade, non-trade and technical barriers to market entry — such as the ones illustrated by this simple case in East Asia — that Washington should remove with a crowbar, if necessary.

      Yes Mr. President, I'll quote your campaign trail statements that "we are being ripped off" as a result of "a bunch of ignorant kids" in Washington. But that time is over. You won. Those are now your "kids" and, above all, the "kids" following your policies.

      And, yes, we know that the "free-traders" in Asia and Europe, mightily profiting from America's misguided trade policies, will be out screaming that Washington is destroying the world's trading system, leading to ruinous trade wars and wrecking the global economy.

      Pay no attention to that nonsense. There are rules of multilateral trade relations that are worth preserving, but no such rule is designed to authorize and protect discriminatory trade practices. Countries also use wide-ranging "opt-outs" in multilateral trade agreements to protect important sectors of their economies.

      Need some examples? Talk to the Japanese about selling them some rice or automobiles. Take a look at virtually any sector of the Chinese economy to see how closely it is monitored and protected. And try to sell some farm products, steel or car tires to the EU, or to penetrate their service sector markets.

      Consider trade issues on their own merits

      In spite of that, Washington managed to lose the public relations battle while it was legitimately trying to cut its huge $750 billion annual trade bill, and to salvage jobs and incomes in America's exhausted import-competing industries.

      That's pretty sad, because Washington was painted as a trade protectionist by Europeans who are running trade surpluses of $390 billion, and by East Asians who are selling $643 billion more than they are buying from the rest of the world.

      But the damage won't stop there if Washington continues to link bilateral trade relations to strategic and security issues. In other words, the U.S. seems ready to tolerate unfavorable trade balances if a country in question chooses to stay on its side against adversaries, such as China and Russia.

      Think again. Consider the case of Asia first. Even people with cursory knowledge of Asian history know that no special U.S. trade concessions are needed to most countries of this region to be very cautious about strategic rapprochement with China. At work are still centuries-old enmities, exacerbated by more recent developments. It would, therefore, be quite unwise for the U.S. to accept a continuation of annual trade deficits of nearly half-a-trillion dollars to get a dubious allegiance to its competitive games with China.

      Europe is an even more flagrant case where the U.S. appears willing to bear annual trade deficits of $170 billion, and a much larger amount of military spending to underwrite the continent's security. The ambassador of a tiny European country was cheerfully reporting last week that U.S. Vice President Mike Pence had given assurances on his just completed trip to Brussels that "America takes the responsibility for stability, prosperity and peace in Europe, including the EU and West Balkans." I wonder what wealthy Europe will do with the money it saves on its own protection.

      Investment thoughts

      The U.S. should consider trade issues on their own merits rather than as part of an intractable strategic calculus. America's external sector of the economy should not be allowed to remain a drag on an already weak growth of aggregate demand.

      The G3 great power relationship should be anchored in Washington — by virtue of America's overwhelming economic and financial importance, and the fact that it remains the only credible supplier of a universally accepted transactions medium and a trusted store of value.

      But America cannot remain for long the center of global economic, financial and strategic gravity with its economy's pitiful potential growth rate of 1.5 percent.

      When Henry Ford II proudly waved Old Gory to celebrate the event where Ferrari 330 P3 and Porsche 906 Carrera were biting the dust of the Ford GT40 Mark II in June 1966 at the world's premier endurance race "24 Hours of Le Mans," he was not just showing who the boss is. In his own way, Hank the Deuce was also paying tribute to American economy and technology.

      Science, economy and unrivaled financial markets are America's ace in the hole. And in case somebody misbehaves, the generals know the return address for the "fire and fury."

      Commentary by Michael Ivanovitch.

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