U.S. “Pivot to Asia” Leaves China with a Soaring Trade Income

Dr Ivanovitch - MSI Global
Dr. Michael Ivanovitch

Since the U.S. announced its strategic rebalancing to Asia (aka “Pivot to Asia”) in 2012, China has pocketed a net income of $3.3 trillion on its American merchandise trades.

China’s net exports have also greatly benefited from America’s recent economic recovery. After a marked slowdown in 2020, Beijing’s trade surplus with the U.S. increased 15% last year, and a new record is likely this year. During the first quarter, Chinese exports to the U.S. have soared at an annual rate of 21%.

Those numbers show that Washington’s efforts over the last ten years have failed to contain China’s economic development and its global power projection.

I don’t see any imminent and major changes to this situation for two reasons.

The first issue to consider is the nature of Sino-American economic ties.

A wholesale production outsourcing has left America with a manufacturing sector that now accounts for about 11% of GDP. That’s half of what it was in late 1970s.

China’s key role in U.S. supply chains

Most of the outsourcing during that period went to China. The latest trade numbers indicate that China supplies 18% of all manufactured goods imported by the U.S. And the Chinese authorities assert that 40% of their exports to the U.S. are generated by American production facilities operating in China.

That means that nearly half of Chinese exports to the U.S. are a structural problem, which can only be changed by an unlikely repatriation of American manufacturing from China, or, equally unlikely, by moving production to other Asian locations.

The second issue is the extent to which the U.S. can tighten its strategic and systemic competition with China – without causing a breakdown of bilateral relations and a dangerous military confrontation.

Who can follow America’s lead in that direction?

Most of America’s European friends and allies are reluctant to join a trade war, or other hostile actions toward China. The E.U. has its hands full with Russia. And, ominously, European fault lines are widening as sanctions-driven energy and food problems continue to fan inflation fires while depressing an already sluggish economic activity.

The shaky E.U. unity has been destabilized to the point where France and Germany want to split the union’s membership to core and periphery by changing the founding treaties. That has caused an uproar, with 13 countries vehemently opposing that initiative.

Washington now has to deal with a fractured and highly volatile trans-Atlantic alliance.

China is watching all that, making sure that the U.S. has no Asian constituency to join trade or proxy-war actions against Chinese interests.

As things stand now, Japan seems to be the only Asian ally the U.S. can count on. But by following the American China policy, Tokyo is putting at risk a quarter of its foreign sales going to China. That is a flammable political choice at a time when exports contribute two-thirds of GDP growth to Japan’s structurally destabilized economy.

China: An Asian NATO would be a “fiery abyss” 

China has been repeatedly warning Japan about that. And to drive the point home, Beijing has stepped up naval incursions into contested areas around Senkaku/Diaoyutai Islands, while its Lioning carrier strike group was conducting drills near Japanese territorial waters.

Beijing’s diplomacy is also making sure that South Korea and the Philippines stay away from any hostile coalitions.

High-ranking China envoys to Seoul are reporting that South Korea’s new president will maintain friendly relations with Beijing. China takes 25% of Korean exports and is Seoul’s by far the largest trade partner.

More generally, China’s economic and political influence in Asia is benefiting from the recent implementation of the Regional Comprehensive Economic Partnership (RCEP).

That world’s largest free trade area is making it possible for China to consolidate economic ties with the ten ASEAN (Association of Southeast Asian Nations) member countries. In the first four months of this year, China’s ASEAN trade rose 7.2% to $274.5 billion and accounted for 15% of China’s total foreign trade transactions.

All that means that it is very unlikely that the U.S. can get China’s neighbors to cooperate in actions to harm Beijing’s economy and to weaken its strategic defenses.

Japan, however, could be an exception. Tokyo’s active support of unending sanctions waves against Russia indicates that it is ready to serve as an eastern bridgehead of the trans-Atlantic political and military alliance.

But how soon can the West open an effective second front in Asia remains to be seen. The lingering pandemic, unfolding energy and food crises, and the mismanagement of U.S. and E.U. economies leave virtually no room for war games of nuclear armed adversaries.

Meanwhile, with its trade surplus currently growing at an annual rate of $6 trillion, China will keep urging the West for a “win-win cooperation,” counting on soaring foreign trade incomes to deliver its projected 5.5% GDP growth.