From the start, China has been the trump card in the current administration’s avowed promise to make America great again.

Sure, there have been trade skirmishes with Europe and America’s North American Free Trade Agreement (NAFTA) partners, Canada and Mexico, but China is the lightning rod in Donald Trump Donald John TrumpBiden on Trump's refusal to commit to peaceful transfer of power: 'What country are we in?' Romney: 'Unthinkable and unacceptable' to not commit to peaceful transition of power Two Louisville police officers shot amid Breonna Taylor grand jury protests MORE’s battle with the world.

ADVERTISEMENT

The political case for this assault is relatively straight forward. There are three legs to the stool — a massive U.S.-China trade deficit, allegations of thievery of both technology and intellectual property and America’s perceived position of relative economic strength that suggests the U.S. has nothing to lose and everything to gain by playing hardball with China.

The economic case is much weaker on all three counts. First, America’s trade imbalance with China, even after adjusting for supply-chain distortions of the official data that includes inputs from other countries that are assembled in China for products such as iPhones, is very real and quite large.

But it is one bilateral piece of much larger multilateral trade deficits with 102 nations — a distinct outgrowth of a chronic shortfall in domestic U.S. saving; the so-called net national saving rate (depreciation-adjusted saving of households, businesses and the government sector, combined) averaged just 3 percent of national income in the first half of 2018, less than half the 6.3-percent average in the final three decades of the 20th century.

Lacking in saving and wanting to grow, the U.S. imports surplus saving from abroad and runs massive current account and multilateral trade deficits to attract the foreign capital.

Contrary to the president’s China-focused blame game, there is no bilateral fix for a multilateral problem. Without addressing saving, tariffs directed at China will simply shift the composition of the overall trade imbalance to higher-cost foreign producers, a tax on American families.

It’s like rearranging the deck chairs on the Titanic. Ironically, in the aftermath of last year’s budget-busting tax cuts, America’s saving problem is now going from bad to worse — an outcome that can only exacerbate current account and multilateral trade imbalances in the years ahead.

Protectionist actions in the face of ever-widening trade deficits is an egregious policy blunder by any stretch of the imagination.

Second, the case for intellectual property theft is much weaker than the Trump administration claims. A detailed Section 301 investigation by the United States Trade Representative (USTR) published in March breaks the argument down into four dubious pieces:

1. Forced technology transfer through joint ventures: This overlooks the simple fact that joint ventures are commercially and legally binding agreements between two partners working together willingly to build a new business that undoubtedly requires a sharing of personnel, systems and processes.

As a senior executive working with a joint venture between my former employer, Morgan Stanley, and the China Construction Bank, I was never forced to turn over anything in our collective commitment to build China’s first investment bank, CICC.

2. Outbound technology capture: The USTR charges China with predatory behavior in gobbling up innocent American tech companies. This is contrary to a tabulation by the American Enterprise Institute, which finds that only 16 of China’s 228 outward-bound M&A deals over the decade ending in 2017 were in the technology sector.

3. Industrial policy: The USTR alleges that China is unique in using state-supported initiatives such as "Made in China 2025" and "Artificial Intelligence 2030" to capture the emerging industries of the future, an existential threat to the very future of American prosperity.

Yet, industrial policies have been the norm for most of today’s leading economies, including Japan, Germany and even the United States, with its Pentagon-sponsored military-industrial complex.

4. Cyber hacking: Notwithstanding a long history of flagrant cases of industrial espionage in the 19th century by Britain, Continental Europe and the United States, evidence of Chinese cyber espionage must be taken seriously, and it was at the Sunnylands 2015 summit between Presidents Obama and Xi.

Unfortunately, the USTR dwells on reports of Chinese hacking that predate an agreement on this threat that was signed at this summit, which has been followed by a sharp reduction in Chinese incursions.

As for the third leg of the stool, the notion that America is strong and China is weak misses the critical point of a complex codependency between the world’s two largest economies.

Yes, China depends on the United States as the largest source of external demand for its export-led economy. But America depends on China to provide those same relatively cheap imports to help income-constrained consumers make ends meet.

A saving-short U.S. economy also depends on China as a lender of its surplus saving, which has come in very handy in funding chronic budget deficits. As America’s largest foreign creditor, China owns $1.2 trillion in U.S. Treasuries and another $300 to $400 billion in debt of government-sponsored enterprises (such as Fannie Mae and Freddie Mac).

Finally, China is America’s third-largest and by far its most rapidly growing export market — an important source of U.S. economic growth that is now at risk in the ever-escalating tit-for-tat tariff war.

China bashing has a long history in the United States. It has been taken to a new level by the Trump administration. It is a political campaign that is divorced from economic reality. China is not about to abandon its core development program.

The U.S. is upping the ante in ignoring its saving imperatives and the trade deficits that occur as a consequence. The all-too predictable conflicts of codependency pose great risks to both nations as well as to the broader global economy. Is there a strategic endgame to Trump’s China folly?

Stephen Roach, a senior fellow with Yale University's Jackson Institute for Global Affairs and former chairman of Morgan Stanley Asia, is the author of, "Unbalanced: The Codependency of America and China," (Yale University Press, 2014).