Chinese President Xi Jinping and members of Chinese delegation attend a working dinner with U.S. President Donald Trump after the G20 leaders summit in Buenos Aires, Argentina December 1, 2018. Kevin Lemarque | Reuters

Was it ruthless greed, ineptitude or hubris that led China to entrap itself into its huge, systematic and unsustainable trade imbalances with the United States? The answer is: All of the above. Beijing's trade problem was also part of unintended consequence of America's economic policy errors. China, therefore, cannot complain about any sinister scheming. In trade and in most of the rest, America's policy toward China has been an open book ever since the Shanghai Communique in 1972, when Washington began its "triangulation" game of playing China to fight its cold war with the Soviet Union. The focus of American policy changed after the collapse of the Soviet Union, as Washington tried to promote a market economy and democracy in China. The Chinese ignored the advice, kept pocketing the benefits of open access to U.S. markets and free technology transfers, accumulating $3.1 trillion of foreign reserves (at the last count) and steadily growing net foreign assets. Thanks in large part to American investments and technology, China moved from its cheap smokestack manufacturing base of the 1980s to an engineering powerhouse, with cutting-edge industries ranging from infrastructure to transportation, telecommunications, computing, military hardware, space exploration and global retailing.

Free-riding is over

It took a while for Washington to sober up from its missionary zeal, and to realize the importance of China's bold and seemingly unstoppable economic development — with all of its political and security corollaries. The problem then became: What do we do now? Torn between extreme and useless advice of American sinologists — take it easy, cooperate; or hit them hard with everything you got, and the sooner the better — Washington opted early this decade for the containment strategy with a "pivot to Asia," later morphing into the "rebalancing to Asia" as a semantic adjustment to apparently make it sound less offensive to China. And while the U.S. was agonizing over its China policy, or, if you wish, kicking the can down the road from one administration to the next, Beijing was stepping up its sales on American markets. Between the beginning of 2011 and the end of the first quarter of this year, the Chinese took $4 trillion on their goods exports to the U.S., encouraged by some economics-challenged pundits that there was nothing Washington could do to stop that. Some of them are still telling the Chinese that U.S. trade deficits and rising foreign debt are pre-ordained, because even in good years American spendthrifts save barely 6% of their after-tax income, while the penny-pinching Chinese squirrel away half of what they earn. The Chinese apparently could not bother with that nonsense. They just kept unloading their stuff, earning a net income of $3 trillion on those $4 trillion of American sales. Showing an incredible chutzpah, the Chinese did not change their trade policy even after U.S. President Donald Trump took office in January 2017 — a man who was throwing harsh trade warnings at China from the campaign trail since 2015. No, Beijing paid no attention to Trump threats: China's exports to the U.S. in 2017 and 2018 exceeded the half-a-trillion dollar mark, and the Chinese surpluses on American trade kept soaring at average annual rates of 10%.

Balanced trade and better ties

One might call that a ruthless greed, a self-assured defiance toward Trump's America or, more generously, a rational response to America's decades-old apparent indifference to one-third of its economy, where China's trade surpluses were slashing growth, jobs and incomes. Instead of following the old law of holes — if you find yourself in a hole, stop digging — China continued to aggravate its U.S. trade case and broadening bilateral tensions with vacuous, lecture-style incantations of "win-win cooperation," a "harmonious co-existence" and a "shared future for mankind." That sort of hubris could perhaps sell in China, but it finds no takers in the U.S., Europe and most other places around the world. Somehow, Beijing officials seem to have chosen to use sloganeering as a substitute for a prompt and decisive action to sharply narrow their excessive trade surpluses with the U.S. — a policy that would have deprived Washington of any legitimate reason to seek relief from damages caused by China's aggressive mercantilism. It is hard to believe that Beijing's leaders did not step in to do the obvious, and the only thing China had to do: Slash the excessive trade surplus with the U.S. quickly and build a more productive relationship with Washington. Trump apparently still hopes that he can cut the Gordian knot with Chinese President Xi Jinping during the G-20 meeting in Japan next month. That perhaps explains his puzzling one-liners bubbling with optimism regarding trade talks with China. China should support that by sending stronger signals on bilateral trade flows to make such a deal possible. Maybe that's what is intended by a 14% annual decline of Chinese exports to the U.S. during the first quarter of this year, resulting in a 12% cut of America's trade deficit with China. But, if that's Beijing's true policy intent, China should restrain its apparent urge to "punish" Washington, as it did with a whopping 19% cut of American goods purchases in the January to March period. Stepping up imports from the U.S. would be a much better, and correct, thing to do to atone for China's abusive trade policies toward the U.S. Washington, for its part, should step back from meddling in China's legislative process and economic policies, while reserving the right to vigorously respond to cases of intellectual property violations, forced technology transfers, illegal industry subsidies and restricted market access to U.S. businesses operating in China.

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