Markets Shouldn’t Overreact Even If There’s No China-US Trade Deal

Since the Donald Trump’s administration took office in January 2017, the goods trade deficit with the rest of the world has subtracted $1.6 trillion from the U.S. economy. About half of that — $760 billion — was a net wealth transfer to China on goods trade, with assorted technologies and liberal access to U.S. markets.

During that time, the excessive and totally misguided focus on China left an unattended and deepening $670 billion black hole of American deficits on goods trade with Europe, Mexico, Canada and Japan — markets that account for about two-thirds of U.S. exports.

On current policies, trade deficits are set to keep soaring, taking away American wealth, jobs and earnings in hard-pressed import-competing industries.

Absurdly, the U.S. is being lectured by China to be “cooperative” (sic). In other words, Beijing is saying that America’s transfers of wealth and technologies to China are the way it should be. So, the implied advice to Washington is not to fuss about it, and to work with Beijing on a “great power relationship” — whatever that is.

An 11 percent increase in China’s trade surplus with the U.S. during the January to November period of last year is perhaps “proof” to the Chinese that Washington is falling for that nonsense.

That’s quite an affront to the China hands in the White House, who must be horrified to see that for those first 11 months of last year, Beijing piled on half-a-trillion dollars worth of export sales to the U.S.

Wonderful, Beijing must be saying, let’s keep talking “win-win cooperation” while we continue to sell — and just be “cooperative,” don’t do anything rash, like trade tariffs, etc.

What’s the way out of that farce? The answer: A bruising trade confrontation. Here’s why.

China apparently believes that its expected $430 billion trade surplus with the U.S. in 2018 — an increase of 14 percent from 2017 – is perfectly acceptable. Beijing, therefore, vows to “fight to the bitter end” in defense of its huge American trade and investment revenues.

The inevitable clash comes as a surprise to most American observers who thought trade issues could be neatly separated from the rest of a dangerously adversarial U.S.-China relationship.

By contrast, China views trade as a supremely political and security issue. The trade negotiating process, therefore, is regarded by Beijing as an existential struggle of a sovereign China.