On current evidence, the short-term outlook for American foreign trade is not good for reasons of (a) different growth dynamics, (b) confrontational trade policies and (c) the political and security fallout exacerbated by intensifying trade disputes.
Barring an inflation-induced recession, of which more later, the U.S. aggregate demand components — household consumption, residential investments and business capital outlays — are underpinned by high employment, increasing inflation-adjusted after tax incomes, low credit costs and targeted fiscal incentives.
An anticipated economic growth in the area of 2.5 to 3.0 percent for the rest of this year would still be more than an entire percentage point above the estimated non-inflationary potential of the U.S. economy. That strong demand pressure will continue to spill over into the rest of the world, and will support America’s vigorous imports of foreign goods and services.
That’s music to European and Chinese ears.
The Europeans — more specifically, export-driven German businesses — are looking forward to increasing American sales at a time when the EU growth has topped out and expected to decelerate in the months ahead.
The Chinese could do things differently to reduce their unsustainably large dependence on U.S. markets. China can use more of its output to serve rapidly expanding domestic markets. It can also step up the geographical diversification of its export sales. Instead of that, China continues to flood American markets with its goods and services, pocketing a gigantic $375 billion surplus on American trades and apparently paying no attention to Washington’s warnings over the last two years.
But the time for warnings is over. Washington has now initiated a flurry of trade tariffs and sanctions affecting large segments of European and Chinese economies.
It seems that the Europeans, led by Germany, are relenting. Some good things in trans-Atlantic trade relations could happen even this week, as a prelude to broader trade agreements during the high-level consultations planned in Washington later this month.
Problems with China are much more difficult, in large part because vitally important trade relations are bound up in a complex web of “strategically competitive” political and security issues.
Trade disputes have become the proverbial “war by other means” — a long-anticipated clash by American sinologists who have never been able to give Washington an operationally sound advice.
But here we are, the U.S. wants to stop large wealth transfers to China and to protect its intellectual properties while (a) opposing China’s claims on its maritime borders, (b) keeping a virtual lock on China-Japan-South Korea trade and investment relations, (c) maintaining “creatively ambiguous” positions with respect to Taiwan’s quest for a quasi-sovereign status and (d) reinforcing close ties with a number of strategically important China’s neighbors.