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The US is defending the West's world order in its fight for balanced trade

  • America's shockingly huge and systematic trade deficits with China are a political issue of the highest order.
  • The U.S. president, therefore, needs to reach an agreement with his Chinese counterpart to square the bilateral trade accounts within a clearly defined timeframe.
  • Germany says it is ready and eager to lead the European Union into a quick trans-Atlantic trade accord that would uphold the system of free and fair global commerce and finance.
President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida, U.S., April 6, 2017.
Carlos Barria | Reuters
President Donald Trump welcomes Chinese President Xi Jinping at Mar-a-Lago state in Palm Beach, Florida, U.S., April 6, 2017.

Celebrating "the end of history" and trying to "manage" China's unstoppable ascent, America, with very little help from Europe, has been on a crucial mission to defend and reinforce the centuries-old system of Western governance based on democracy, rule of law and respect for human rights.

In the process, inadequate attention to U.S. foreign trade accounts and errors of economic policy have made that mission increasingly difficult. The resulting losses of wealth and proprietary technology, and an enormous accumulation of domestic and foreign debt, have led to tides of fury and ebbs of thoughtful introspection about America's role in the world.

Watching the pictures and reading the reports of last week's trade negotiations with China shows how far America has gone in the neglect of its vital interests. It would have been hard to imagine only a few years ago that Washington would be sending envoys to tell Beijing that its excessive $375 billion surplus on American trades could no longer be tolerated.

Hard indeed, especially since Washington did not need to do that.

A deal Xi could not refuse

One of the first orders of business for President Donald Trump should have been to tell China's President Xi Jinping that he would like him to quickly bring down that exorbitant surplus — and to follow that up with balanced bilateral trade accounts. That would have been in full compliance with G-20 recommendations for a balanced and stable world economy, and would have also conformed to China's proclaimed commitment to "win-win cooperation."

Such a talk would be an easy conversation to test what Trump calls his "great relationship" with China's core leader. Xi is the only person in China who can fix the trade problem as simply and quickly as he brought about a spectacular change in world's war and peace conditions on the Korean Peninsula. Xi's trade negotiators are acting on his direct orders, and nothing will be done until Xi puts on it his imprimatur.

Had Trump done a deal that Xi could not refuse — while continuing his crusade for globalization, multilateralism and a "win-win" business — the negotiating teams would have only had to decide how to increase American sales to China and how to cut China's exports to the U.S. They'd be working with specific numbers and time limits to implement their leaders' agreement.

Trump, unfortunately, missed a chance to do that. He has now embarked the U.S. on a never-ending negotiating rigmarole that will lead to a serious — and very dangerous — confrontation with China. Trump can now expect increasing difficulties in his relationship with a Chinese leader who is successfully edging American influence out in many areas of Asia and beyond.

Just as the U.S. trade team was getting ready to leave Beijing last Friday, Xi was working the phones with South Korean President Moon Jae-in and Japanese Prime Minister Shinzo Abe.

According to media reports, Xi, who made the recent inter-Korean summit possible, assured Moon of China's support for peace and cooperation. Moon, of course, needed no convincing from a Chinese leader who is taking more than a quarter of South Korean exports, and who hosts large investments and local production of Korean chaebols.

Work with Germany for a quick EU trade accord

A much more important phone call was the first-ever such contact last Friday between Xi and Abe — a crowning achievement for Abe's long years of patient and persistent pursuit of dialog with the Chinese leader. Even with Xi's mandatory reminder that Japan should "remember history and draw proper conclusions," Abe now knows that China's huge and rapidly expanding market is opening wider to Japanese trade and investments.

Beijing says it is "ready to press the reset button with Tokyo," Abe is expected to come to China this year to celebrate the 40th anniversary of the Sino-Japanese Treaty of Peace and Friendship, and Xi's visit to Japan is planned for next year.

And while the U.S. was announcing that "there will be consequences" to China's military installations on contested islands in the South China Sea, Philippine President Rodrigo Duterte was saying that relations with China will "bloom ... like a big and beautiful flower," while thanking China for helping his "Build, Build, Build" infrastructure program.

Vietnam, another supposed "opponent" to China's expansion, is currently working to "lift the comprehensive strategic cooperative partnership" with Beijing to a new level by aligning its "Two Corridors and One Economic Circle" development program with "Belt and Road" infrastructure projects.

Indonesia, where China remains the largest trade partner, is making similar efforts to upgrade its infrastructure with the help of Chinese investments and financial assistance to build power plants, roads, bridges and high-speed rail lines.

Those are some of the most prominent examples of deeply entrenched and rapidly expanding China ties in East Asia. One could also add to that list Cambodia, Laos, Myanmar and Thailand.

It is easy to understand why all these countries openly, or tacitly, support China in its trade standoff with the U.S. And that sympathy for China will probably keep increasing as the hostile rhetoric and obstacles to trade flows continue to escalate.

But the most regrettable and strident accusations of American "trade protectionism" come from the European Union. For Washington, that was one trade fight too many. A total miscalculation and a masterclass of how one converts an eminently valid and relatively minor trade complaint with friendly allies into a devastating liability.

Investment thoughts

America's shockingly huge and systematic trade deficits with China are a political issue of the highest order. Trump should have dealt with that directly with his Chinese counterpart to set the principle, and the schedule, for the rebalancing of bilateral trade accounts.

Instead of that, Trump has allowed the issue to slip into the meanders of interminable nitpicking.

Two things could be done now.

One, an urgent Trump-Xi meeting to get the trade issue back to the level where it belongs. No tweets. Only a respectful, forceful and friendly call for squaring the trade accounts, with the appointment of working parties to implement the agreement within a clearly defined timeframe.

Two, get — as quickly as possible — an example-setting trade accord with the EU. Germany says it is ready and eager to do that to guarantee the stability and predictability of the EU's trade relations with the U.S.

America and the EU need each other to safeguard the system of free and fair international trade they built together. That system is the foundation of free market economies based on democracy, rule of law and respect for human rights. Put briefly, that is the West's world order — Pax Americana — that is now being defended from, what Washington calls, "revisionist powers" espousing very different principles of statecraft, and very different societal forms and values.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.