Current estimates show that the limping American economy will still make a trillion-dollar contribution to world’s demand and output this year and next.

North America (Canada and Mexico), European Union and China are the largest beneficiaries of the U.S. foreign trade.

In the first seven months of this year, those economies accounted for 67% of America’s merchandise trade deficit.

China again was the biggest winner, taking in a net trade income of $156 billion on its American goods trade transactions.

Despite those numbers, some of you may find the idea that the U.S. remains a locomotive of world economy hard to believe. After all, what you hear now is that a debt-ridden America will be lucky to skirt a recession over the next 12 months.

So, let’s clarify how international trade operates on demand and output.

A country buying more than it sells to the rest of the world is contributing to economic growth of its main trade partners. Conversely, a country selling more than it buys from the rest of the world lives off its main trade partners, especially in cases where the country’s trade surpluses become a structural feature of its economic growth.

Deficits do matter

This is the kind of discussion you will mostly find in economic textbooks. The general media and financial analysts either ignore this key concept of macroeconomic theory, or, like some American politicians, they think that “deficits don’t matter.”

Leaving that topic for another occasion, let’s show, instead, some examples of actual trade patterns of three major world economies.

The U.S. goods and services trade with the rest of the world is now fluctuating around trillion-dollar deficits. This year and next, those deficits could be well above 3% of GDP.

By contrast, the 20 countries of the European monetary union (aka the euro area) are running trade surpluses that closely reflect the bloc’s growth path. Last year, its surplus on goods and services trade was a rather small €104.4 billion (0.7% of GDP) as its strongly growing economy (3.5%) was pulling in more imports.

That is changing now. The euro area trade surpluses are surging toward the €350-€400 billion range (2.5% of GDP) because the economy has entered a growth recession. The area’s businesses are now exporting to survive (that’s living off one’s trade partners).

China, with its high savings rate, modern manufacturing industries and unrivaled infrastructure technology, has created a steady stream of half a trillion dollars in annual surpluses on its goods and service trades – roughly equivalent to 2.5% of GDP.

Upgrade the U.S. trade policy

And Beijing’s trade with Washington remains very imbalanced. During the January to July period of this year, U.S. goods exports to China were only one-third of China’s exports to the U.S.

The main message of all that for Washington is to make trade with the rest of the world a key foreign policy component.

That’s imperative for an open country where the external sector represents 30% of GDP. Indeed, the trade balance is an important factor of economy’s cyclical and structural stability.

The U.S. current trade deficit of 3% of GDP is a bit higher than its long-term average. The deficit reflects the strength of domestic demand, structural problems of a relatively low savings rate, and the dollar’s position as the key transactions currency and reserve asset.

Taken together, those cyclical and structural features make it difficult to avoid external deficits. And that creates several issues to keep in mind.

One, Washington should prevent systematic and excessive bilateral trade gaps. That is now becoming an increasingly important problem because the world’s trading system is getting fragmented along the lines of competing security and strategic alliances.

Two, being by far the world’s largest economy, the U.S. should uphold, as much as possible, a reasonably free and fair trade. Cases of discriminatory trade practices – restricted market access, sanctions, “de-risking,” dual technology export bans, etc. – should be avoided. Those measures invite retaliation, with shrinking trade and large losses of jobs and incomes.

Three, in view of rapidly changing global power relationships, Washington may wish to keep its debt and deficits down to avoid binding external policy constraints.

On the home front, America’s monetary, fiscal and labor market policies should be targeted around the country’s potential and noninflationary economic growth, currently estimated around 1.5%. That is down from the most recent long-term average of 3%, mainly owing to a weak labor force and labor productivity growth – matters of serious policy concern.

The monetary policy should maintain a leading role in stabilizing the U.S. economy by restoring price stability, guaranteeing the safety and soundness of the financial system -- and refusing to validate irresponsible fiscal policies.