In a major foreign policy change, President Barak Obama initiated in 2011 a “pivot to Asia” to manage China’s rising regional influence.

Obama then followed up in 2013 with an informal summit hosting a newly installed Chinese President Xi Jinping in California Sunnylands. The meeting focused on climate change, cyber security, intellectual property protection, China’s contested maritime borders, the status of Taiwan and U.S. arms sales to that self-governed island.

As expected, the most important issues remained unresolved.

Discussions with China continued during President Trumps’s first term, with attention shifting to soaring U.S trade deficits, as Beijing pocketed on Trump’s (first) watch $1.45 trillion of net income on its U.S. trades.

Trump has now got his revenge with a huge narrowing of the trade gap with China. But China’s extensive territorial claims in South and Eastern China Seas and the status of Taiwan became Beijing’s non-negotiable red lines.

Apart from that, China’s impressive economic development made possible its deepening regional integration and rapidly growing global power projections.

Ignore the neocon paranoia

All that has revived the “pivot to Asia” debate, the failure to contain China and calls to deter China’s alleged threats to peace and prosperity in the Indo-Pacific area.

Hopefully, Washington will ignore such misguided calls to arms. We are dealing here with a delicate balancing act of nuclear armed strategic adversaries. Only lunatics could advocate an armed conflict that would rapidly escalate to a nuclear conflagration and the end of humanity.

Washington, therefore, may wish to concentrate on its distinctive advantages. Here are a few easy but important points the U.S. can score in the current debate.

American economy is still 47 percent larger than China’s economy.

An even more important difference is that the U.S. economy remains the main engine of jobs and incomes in the rest of the world. Last year, the U.S. made a net contribution of $1.2 trillion to global economic development. That’s the current account deficit – the money Americans spent supporting foreign manufacturing and service industries.

In contrast, China last year booked a current account surplus of 3.3 percent of GDP. The rich European Monetary Union, aka the euro area, also ran a current account surplus equivalent to 2.6 percent of GDP.

In other words, China and the euro area, accounting for one-third of the world economy, continued to get rich on the back of the rest of the world.

Led by Germany, the euro area has no problem with “beggar-thy-neighbor” policies, while China’s official media describe the $690 billion trade surplus Beijing took out from the world’s purchasing power in the first seven months of this year as a “help-thy-neighbor” charity.

“The chief business of American people is business”

The dollar is another distinct American advantage because the greenback remains the world’s supreme public good and the pillar of the international financial system.

The Bank of International Settlements (BIS), the bank of world central banks, reported last February that 89 percent of global business transactions in 2025 were executed in U.S. dollars.

The dollar, therefore, is an unmatched global currency in its roles as a unit of account (standard of value) and a means of payment (medium of exchange).

The third function of money is the store of value. In international monetary theory, those are dollar balances held as central banks’ currency reserves.

The IMF shows that in the first quarter of this year the dollar accounted for 57 percent of world reserves, followed by 20 percent for the euro, 5.4 percent for the Japanese yen and 1.9 percent for the Chinese yuan.

The dollar’s strong moneyness characteristics also explain why it remains an irreplaceable pillar of the international financial system. All exchange rates are stablished and expressed in terms of the dollar. Even bilateral non-dollar exchange rates are notionally connected through their relative dollar values.

The message from all this is clear: The U.S. economy is the best and the most effective instrument to keep America as a beacon to the world.

But to do that, we need a well-balanced American economy, with a stock and quality of human and physical capital that would allow steady and sustained growth with full employment and stable prices.

How far are we from that?

The economy remains on a 2.1 percent growth path. That is fully consistent with the economy’s potential and noninflationary growth rate. Any sustainably faster economic growth rate would require a faster growth of productivity and labor supply.

The U.S. unemployment rate of 4.1 percent in July reflects a fully employed economy.

The consumer price inflation in July of 3.4 percent is well above the medium-term objective of 2 percent.

Public finances show budget deficit increasing toward 8 percent of GDP and public debt exceeding 123 percent of GDP. And external accounts are on course for a deficit of 3.7 percent of GDP.

The priority here is to stop and reverse the deterioration of public sector accounts. That would allow monetary policy to continue its present mildly accommodative stance (with the real effective federal funds rate of 0.23 percent) or even ease up a bit to keep activity growing and inflation under control.

America will lead world economy only if it stabilizes its own economy.

And forget the neocon paranoia of “full spectrum dominance.” Strategic stability with China and Russia is enough and quite possible. Cool it with the E.U. and keep the Europeans as close allies. Ditto with Latin America. Reassure Israel, end Iran hostilities and reaffirm Arab world alliances.