Economic and financial relations are always a mirror image of social and political interactions between governments or trading blocs.

That state of affairs may not obtain at any particular point in time, but it always, and everywhere, ends up in a perfect correspondence between economic and political interests.

The period of 2017 to 2022 of U.S.-China relations offers an example of such a temporary dissonance between economic and political relations of world’s two largest economies.

It all started with the former President Trump’s campaign rallies in 2015 and 2016, where he repeatedly blamed China for America’s systematic and excessive trade deficits (“They are ripping us off, folks …”). In spite of that, China pocketed – on Trump’s watch – a $1.45 trillion of net income in merchandise trade with the U.S. On top of that, China got free technology transfers that go with such a large access to American markets.

With a somewhat less strident anti-China rhetoric, the Biden administration allowed the same sort of trade debacle in 2021 and 2022. Indeed, during those two years, China booked a $736.4 billion surplus on its merchandise trade accounts with the U.S.

How, and why, did that happen?

The most important reason for such a bad record on U.S.-China trade is America’s wholesale offshoring of its manufacturing industries to China. That helped to transform China’s smokestack factories to a state-of-the-art, information technology driven production facilities.

Obama’s “Pivot to Asia” was a game changer

At one point, Beijing was even saying that half of its goods exports to the U.S. originated in China located American companies. No evidence was offered for that claim, but the offshoring reduced American manufacturing sector to less than 10% percent of U.S. economy.

Under conditions of sustainable and rules based free trade, such an international division of labor could make sense. But, closer to the truth, the offshoring was driven by the naïve post-Cold War euphoria (i.e., the “end of history” nonsense) that a richer and a more prosperous China would soon be joining the U.S.-led liberal democracies.

All that was swept away by Obama administration’s “Pivot to Asia” and subsequent U.S. national intelligence estimates that China and Russia were “revisionist powers” and “strategic competitors” bent on changing the American world order.

We are now back to the full correspondence between economic and political relations as the U.S. moved to a “vigorous competition with China” and a proxy war with Russia.

After reaching a record-high $537 billion in 2022, China’s goods exports to the U.S. fell 25% in the first eight months of this year to a total of $276 billion. U.S. exports to China are also down slightly, but at $94 billion they are just one-third of what China sells on American markets.

That declining trend in U.S.-China trade is firmly in place. The White House trade office is on record that the U.S. wants to trade and invest with its allies and countries whose trade policies are more in line with the free and fair-trade practices of liberal democracies.

China wants changes in West’s relations

The E.U. is showing a similar, although much milder, downward trend in its trade with China. After a 32% increase in imports from China last year, the trading bloc is reporting a 13% decline in its goods purchases from China during the first seven months of this year. Over the same interval, European sales to China have been stagnant.

Things apparently could get much worse. Beijing even fears that a trade war with the E.U. is possible because of the bloc’s intention to reduce trade and investment transactions with China. The latest problem is the E.U. probe of China’s allegedly illegal subsidies to its huge and highly competitive electric vehicle production.

China says it is ready to retaliate and continues to build its E.U. network of electric car dealerships at a time when Europe has very few products to meet Chinese competition.

This is the beginning of a serious trade fragmentation along the world’s ideological, political and security fault lines.

China is particularly sensitive to this issue because economic development remains its key strategic objective. That’s why China continues to plead for openness, multipolarity and its mantra of “win-win cooperation.” Beijing has also been adamantly opposed to the German call for E.U. “de-risking,” arguing, correctly, that this is just a semantic cover for political, economic and financial decoupling with China.

More broadly, Beijing is denouncing the Western “double talk,” “lack of sincerity,” and the clear intent to contain China’s economic development and its role in world affairs.

In that context, China is going along with Western insistence on keeping the lines of communications open, but Beijing does not see that various talking forums are changing anything in its contentious economic, political and security issues with the West.