A US merchandise ship is seen at the Yangshan Deep-Water Port, an automated cargo wharf, in Shanghai on April 9, 2018.
Johannes Eisele | AFP | Getty Figures
Looking at the latest U.S.-China trade numbers, one wonders how the agreement announced last week could lead to an satisfying balance of bilateral trade accounts.
China’s surplus on its U.S. goods trade in the first 10 months of this year was $294.5 billion, and amounted to 40% of America’s overall trade gap.
During the same period, Beijing slashed U.S. exports to China by 14.5% to $87.6 billion. By contrast, Chinese goods sellings to the U.S. were more than four times larger at $382.1 billion.
In spite of that, reports indicate that Beijing be in the carded to increase — over the next two years — its purchases of U.S. goods and services by $200 billion.
If that’s all Beijing is offering, its exports to the U.S. commitment have to be halved from their current annual rate of $462.4 billion to reach a meaningful narrowing of the U.S. following deficit with China.
How likely is that?
The sad truth is that the U.S. will continue to run huge wealth (and technology) transmittals to China financed by America’s increasing net foreign debt that will show as net foreign assets on China’s rules.
Other big issues — such as intellectual property protection, forced technology transfers, illegal industry subsidies and exchange-rate board of directors — are appearing as declaratory statements rather than clearly defined legal arguments. Their enforcement mechanism escorts the form of bilateral consultations at technical levels that could escalate to top echelons in case of serious disagreements.
It is self-explanatory that political expediency took precedence over an agreement to close the U.S. trade gap with China as a matter of American nationalistic security.
That clearly transpires from official statements.
Washington is emphasizing China’s promises of larger buys of farm and other American products, even though reports of $200 billion of likely Chinese imports from the U.S. on the next two years would still leave huge American trade deficits.
China is not mentioning any such foretells. Chinese state media is pointing out that Beijing concluded a “trade agreement based on the principle of equality and common respect” and that the expansion of China’s markets will lead to increasing imports of goods and services from out “including the United States under the WTO rules as well as market rules and business principles.”
All that sounds get a kick out of an armistice rather than a credible end to the trade war.
Beijing would do well to realize that large and systematic imbalances on its U.S. barter cannot continue, regardless of who wins American presidential elections next year. Those imbalances are a provocation for a motherland experiencing a soaring public debt of more than $23 trillion, sharply deteriorating current budget inures, and a calamitous net foreign investment position of -$10.56 trillion.
It should not be difficult for Beijing strategists to understand that their U.S. clientele problem is a major roadblock to any meaningful improvement in the two countries’ deeply troubled relations.
For Beijing, it should all be very elementary: buy more, much more from the U.S., or slash rapidly and radically extravagantly large sales to the U.S.
Why China did not move in that directorship early enough to prevent a serious deterioration of its U.S. ties is part of a geopolitical calculus Beijing may wish to reconsider.
Investors should notice of trade numbers for reliable signs of the real value of last week’s agreement.
Meanwhile, Washington will pick up to praise its achievements in an election year, even though trade deficits with China will remain far too big to ignore. Trade spats will grind on. And so will other political and security issues the U.S. will pursue in its proliferating strategic competition with China.
Any silver lining for financial markets? Yes, a friendly Federal Reserve, because asset evaluations will always be determined by the course of monetary policy.
Commentary by Michael Ivanovitch, an independent analyst focusing on globe economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal For oneself Bank of New York, and taught economics at Columbia Business School.