The last week’s meeting of U.S. and China trade officials in Washington confirmed one more time that commerce and finance between the world’s two largest economies cannot make progress in the context of increasingly adversarial political and security relations.

That also showed that the U.S. mantra of open lines of communication with China was no substitute for a credibly peaceful and constructive dialogue. The trust is long gone, and the crisis management looks severely compromised while the American and Chinese air and naval assets are defiantly operating in east Asia’s contested air and sea lanes.

Predictably, trade and investments are among the main casualties of such a hostile relationship. In fact, the latest trade data are confirming an accelerating economic “decoupling,” dressed up as an oxymoronic “de-risking.”

During the first quarter of this year, the U.S. merchandise trade with China was down 20%, with a 27.3% decline of U.S. imports from China.

And the outlook is as gloomy as ever, despite Washington’s apparent review of trade tariffs on China imposed by the Trump administration. Those tariffs have led to rising U.S. prices and should be abolished. More generally, other administrative barriers to trade with China are also stoking inflation due to supply shortages from domestic import-competing industries.

Don’t break up the global trading system

Decades of Washington’s neglect of large and systematic trade imbalances with China have created structural problems with a dramatic shrinkage of America’s manufacturing sector.

Here is an example: The U.S. trade deficit with China in the first quarter of this year was nearly halved from the year earlier to $60 billion, but American exports to China during that period were still two-and-a-half times lower than China’s exports to the U.S. That’s a result of massive offshoring of American manufacturing to China.

What is the U.S. government proposing to do about China trade?

The White House trade officials argue that China’s state-controlled trading is incompatible with free market principles. Managing the U.S.-China trade under those conditions is difficult and structurally biased. Washington, they say, should reduce its reliance on China’s products and services and do more business with market economies – preferably those that maintain friendly and allied relations with the United States.

That policy shift is already under way. During the first quarter of this year, the U.S. bilateral trade with the E.U. rose 15.3% to a total of $236.4 billion (while falling 20% with China). Over the same period, American exports to the E.U. soared 18.2% to $95 billion (compared with $39 billion exports to China).

There are two questions here: (a) will the U.S. business community agree with the “decoupling” or “de-risking” of its trade business with China, and (b) will the U.S. friends and allies follow the lead or simply take market positions abandoned by American firms?

Elon Musk of Tesla Motors, SpaceX, etc. and Jamie Dimon of JP Morgan said “no” to decoupling during their visit to China earlier this week. Musk announced an expansion of his business in China. Dimon said the same thing, pledging to support Shanghai as an international financial center where he now opened his bank’s futures market operation.

Fix the U.S. economy

Dimon also met with the Shanghai Communist Party Chief Chen Jining as he was hosting a three-day JPMorgan Global China Summit. It’s a good bet that he had a lot of like-minded people on the decoupling issue among his 2,600 guests from 37 countries and regions.

A lot of them come from Europe. While Musk and Dimon were talking business, a foreign policy and security adviser to the German chancellor was meeting with a member of China’s Communist Party Central Committee to prepare the seventh Sino-German governmental consultation on June 20. And that consultation will provide a key input to the E.U. meeting of heads of state and government on June 29-30, 2023.

According to a brief readout, the German assured his host that the “foundation of Germany-China relations is solid,” and that Germany will “firmly pursue the one-China policy.”

So much for the trans-Atlantic solidarity.

The best the U.S. can do is: (a) stabilize the economy and the financial system to ensure a steady noninflationary growth, (b) trade with China and use the U.S. trade laws and international arbitrage to protect American industry and intellectual property, (c) focus on education, science and technology, (d) take another look at social welfare, (e) use Jim Baker’s rule “do we have a dog in this fight” to redefine the main foreign policy principles, (f) follow the U.N. Charter and practice peaceful coexistence because there can be no winners among nuclear armed adversaries, (g) maintain a strong presence in development programs for Africa and Latin America, and (h) strengthen the G20 as the principal forum for an orderly international trade adjustment and effective policy coordination.