China, Japan and the EU are defying Trump’s trade policies — and are getting away with it. Last year, on Trump’s watch, they ran a combined $595.4 billion surplus on their American trades — a 5.8 percent increase from 2016.
And things are now getting worse. With the U.S. domestic demand revving up a bit, America’s trade gap this year could be much wider. In January and February, the U.S. trade deficit with those three large economic systems, accounting for about 40 percent of world’s demand and output, was running at an annual rate of $612.3 billion, a 3 percent increase from the same period of 2017.
What can Washington do?
First, stop threatening. But do make sure that everybody understands the U.S. won’t be the dumping ground of the world, with systematic losses of wealth, jobs and proprietary technology.
Second, make a deal with Germany to cut U.S. trade deficits by boosting American exports to the EU while replacing a significant part of imports with products generated by European companies in their U.S. production facilities.
Japan would follow suit by stepping up supplies from its U.S.-based manufacturing outlets. But whether Tokyo will open up its markets to American goods and services will depend on Washington’s implementation of rules of reciprocity.
Third, watching all this, China would understand that it has to cooperate, provided Washington stops linking strategic security issues with what Beijing should normally do as a responsible world trader.
Remember, the Chinese realize that no trade concession on their part can wish away acute U.S.-China questions, such as Taiwan, contested maritime borders in the South China Sea, the sequels to the Korean War and “strategically competitive” issues in the Indo-Pacific region and beyond.
Talk reciprocal nickels and dimes with Beijing, and make sure that the people we call our friends and allies are following the same approach. The U.S. can’t have monumental trade issues with China while its closest allies are flocking to Beijing for lucrative “golden era” relationships. If that continues, Washington will be left holding the bag.
The Chinese are in an untenable situation where they live off their main trade partners while advocating globalization, multilateralism and the empty shell of “win-win cooperation.” If they continue on that path, they will discredit China’s remarkable achievements accomplished over decades of hard and smart work to save, produce and sell to willing buyers around the world.
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.
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