The news last week that a trade agreement with China was finalized, and that similar deals would soon be reached with ten major trade partners, drove American stock market valuations to their record high level.

That is exactly the opposite of what happened in early February when Washington announced its sweeping trade tariffs, pushing the key stock market index down 12% over the next two months.

China is America’s by far the largest trade partner. More importantly, it is also the supplier of critically needed minerals for weapon systems, automobile industry, passenger aircraft, and a broad range of other high technology industries.

Trade problems are the last thing the U.S. needs at the time when its economy is struggling with sharply rising trade deficits (up 45% in the first four months of this year), a soaring public debt ($37 trillion and 123% of GDP at this writing), runaway budget deficits (8% of GDP) and a sinking dollar (-11.5% since the beginning of this year).

The announced trade agreement with China stipulates that Beijing will approve rare mineral exports to the U.S. and Washington will do likewise with hi-tech exports to China. The two countries will also suspend most of the tariffs on their goods trade for 90 days.

Balance the trade with China

That sounds like a good work in progress. The problem is that the bilateral trade in China’s rare minerals and U.S. high tech products have implications that are incompatible with U.S-China disagreements about the countries’ core political and strategic interests.

China is complaining that the U.S. does not respect the “one-China” principle in the case of the status of Taiwan. For Beijing, Taiwan is a province of China, its status is an internal matter and the reddest of China’s red lines. The U.S., therefore, cannot maintain a quasi-sovereign state relations with a province of China (like selling arms to Taipei) and insist on the island’s status quo as a self-governed entity.

Washington also does not recognize China’s maritime borders and, according to Beijing, violates its sovereignty and territorial integrity by conducting “freedom of navigation and overflight operations” in the South China Sea.

In that context, Washington is backing up Japan’s territorial claim over Senkaku/Diaoyu islands in the South China Sea, which Beijing considers an inherent part of China since ancient times. And to make things clear, the U.S. confirmed last January that Senkaku islands are covered by Article 5 of the U.S.-Japan Security Treaty – requiring the U.S. to defend Japan’s sovereign claims.

The Korean Peninsula armistice, and the North Korean nuclear disarmament, are also open U.S.-China issues. All that may now be a moot point because Pyongyang no longer seems interested in any negotiations. But there are still 24,000 U.S. soldiers in Camp Humphreys – America’s largest overseas military base – to protect South Korea, Asia’s fourth largest economy.

And Iran is not a moot point in U.S.-China relations. About 90% of Iran’s oil is exported to China, providing 14% of all Beijing’s oil imports. China also mediated a reconciliation between Iran and Saudi Arabia in 2023, with a pledge to support Iran on its “core interests.”

Russia is part of Europe’s security architecture

All those acute security issues will interfere in U.S.-China trade and investment transactions because limitations, or outright banning, of top technology exports to China have been introduced to prevent and contain China’s power projections on a global stage.

The U.S. trade with Russia is a very different story. In the first four months of this year, that trade amounted to a negligibly small $1.7 billion, although it rose 24% from the year earlier. Any further trade and investment relations between U.S. and Russia depend on the peace in Ukraine and progress toward a stable security architecture in Europe.

Sadly, that is a tall order. President Donald Trump would like to promptly end the war he inherited from Biden administration, but he apparently faces difficulties with his European allies and with Russia’s quest for a politically neutral and demilitarized Ukraine.

Trump, however, is the only person who can bring peace to Europe.

Once that is done, Trump can move to build more cooperative and productive relations with Russia and China – because that is the only possible solution to a modus vivendi among nuclear-armed world powers.

Such a fundamental shift in America’s foreign policy would come at a time when Washington has hopefully secured fairer and more favorable business relations with its main trade partners. That would be a huge improvement for a country where one-third of the economy directly depends on external trade and investment transactions.

It just may be that Wall Street is betting on such a truly America First policy change.