Opinion - World Economy

A US detente with China and Russia would boost the world economy

Key Points
  • Easing tensions with China and Russia would open more space for American businesses to expand their global trade and investments.
  • Washington has to stop the senseless arms race with new arms agreements.
  • America’s priority is to rapidly close its huge trade deficits with China. In addition to harming the U.S. economy, those deficits are conduits for transfers of American wealth and technology that support China’s economic development and its global network of influence and zones of interests.
Russian President Vladimir Putin and Chinese President Xi Jinping with other leaders pose for a group photo at the Second Belt and Road Forum for Econonic Cooperation on April 27, 2019 in Beijing, China.
Mikhail Svetlov | Getty Images

Trust is an economic variable in short supply among the nuclear behemoths jostling for global dominance. But without an architecture of verifiable trust, codified in enforceable international rules and regulations, world trade and investments would dry up.

Investments, in particular, would be hard-hit. Even after the most detailed and meticulous risk analysis, investments are always an act of faith — a leap into an unknowable future.

Dare we hope then that senseless tensions and ludicrous war threats among the U.S., China and Russia could soon change thanks to a sudden revival of Mutually Assured Destruction true believers?

That is a military doctrine with a long history, but a somewhat updated MAD idea is very simple: There would be no survivors to a nuclear war fought by U.S., China and Russia. Such a lunacy would spell the end to humanity.

Wisdom to stop the madness

In spite of that, some people have always thought that developing America's capability of a devastating nuclear first strike could relegate the MAD to the dustbin of history. The U.S., those war-mongers believed, would obliterate the enemy and its second-strike chance to attack the United States.

That has always been the wishful thinking of brainless hawks.

Indeed, even during the breakup of the Soviet Union, and Russia's subsequent long and deep economic and financial crisis, the country's formidable nuclear arsenal was fully capable of playing the MAD game. And many of the cutting-edge nuclear weapons currently showcased by the Kremlin had been on the drawing boards during those difficult years.

Now we also know that China's nuclear-armed submarines — Beijing's additional and updated second-strike capability — are being hunted by American defense forces in close proximity to U.S. maritime borders.

Weaponizing space with nukes and their delivery vehicles is the last MAD frontier, and whether that madness can be stopped is not clear.

But it is a hopeful sign that U.S. President Donald Trump has initiated discussions with Russia about a new nuclear arms treaty that would include China. Trump also revealed last week that, during the ongoing trade talks, Beijing "felt very strongly" about being part of the U.S.-Russia arms negotiations.

Including China in the forthcoming arms talks is a good move. It can also be an important detail to enhance Washington's bargaining power in a decisive negotiating round where key aspects of a trade deal have yet to be settled.

More generally, arms talks can be part of a Kissingerian detente — an attempt to relieve tensions and address a wide range of strategic issues defining the three-country relations.

An example of that is what happened last Friday during Trump's telephone conversation with Russian President Vladimir Putin. Apart from the new arms treaty, the two men were said to have discussed the Korean problem, Venezuela's crisis and more.

Remarkably, they also talked about trade. According to U.S. data, the bilateral merchandise trade last year reached a puny $27.5 billion. But that was still a 16% increase from 2017, despite punishing American sanctions on business dealings with Russia.

It is possible that the value of those trade transactions could rapidly double, or triple, if Washington and Moscow could come to terms with respect to some of the acute strategic issues they have been facing over the last five years. American companies are participating at the main economic forums in Russia, apparently waiting for thawing political relations to step up trade and investments and make up some of the ground lost on Russian markets to their European and Asian competitors.

Don't bludgeon, compete with China

A much larger business is at stake with China, where U.S. exports represented last year only one-fifth of a $635.4 billion in two-way goods trade.

That profoundly unbalanced trade relationship is taking place amid growing political and military tensions, and an increasingly difficult operating environment for American firms in China. Under those circumstances, the U.S. should insist on a rapid rebalancing of trade accounts, instead of trying to impose on Beijing structural reforms in its economic and trade policies.

Pressing Beijing on structural reforms is a waste of time in a blind alley. The same is true of U.S. efforts to contain Beijing's seemingly unstoppable spread of global economic and political interests.

Except perhaps for Japan, no Asian country is ready to actively help the U.S. in opposing China's maritime border claims and pressures on Taiwan. China also disapproves of the American policy of maximum pressure on North Korea to force a nuclear disarmament without security guarantees and the lifting of debilitating economic sanctions.

Put briefly, Asians worry about having to choose between the U.S. and China, while Beijing just wants the U.S. out of Asia — an objective obliquely formulated in terms of an unwelcome interference of outside forces in Asian affairs.

The U.S. solution to the China problem is a robust and peaceful competition. China calls that cooperation, adding a "win-win" mantra to sugar coat a bitter pill for losers accumulating trade deficits.

But to compete with China, the U.S. needs to eschew threats and raw pressures. It must offer, instead, more attractive alternatives and meticulously protect its markets from predatory trade practices. The U.S. soft power is infinitely more appealing, and many American companies are proving that they are fully capable of profitably taking on some of the world's most aggressive competitors.

Investment thoughts

Washington has to (a) restore its defense parity with China and Russia with antidotes to their hypersonic weaponry and (b) stop the senseless arms race with new arms agreements.

Beyond that, the U.S. would benefit from easing tensions with China and Russia in general. That would open more space for American businesses to expand their global trade and investments.

And, by all means, Washington should stop trying to reform China.

America's priority should be to move promptly and aggressively to rapidly close the large trade deficits with China. Those deficits are conduits for transfers of American wealth and technology that support China's economic development and its global network of influence and zones of interests.

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.