Washington has blissfully ignored decades of systematic and excessive trade deficits on its merchandize trade with China.

And during that time, Beijing has tirelessly lectured Washington to embrace the mantra of the “win-win cooperation” instead of a “zero sum game” of another era.

Here are some numbers to show what’s at stake.

Over the last decade (the period from 2014 to 2023), China’s income on its export sales to the U.S. came in at $4.8 trillion. During the same interval, American income on exports to China was a very modest $1.3 trillion.

That gave China a whopping trade surplus of $3.5 trillion on its very lucrative U.S. trades, while leaving American exports to China at a quarter of Chinese sales to America.

A wonderful “win-win” deal for the U.S., isn’t it?

And the story continues. Trade numbers for the first half of this year show that China’s goods sales to the U.S. are three times larger than China’s purchases of American goods, and China’s trade surplus is running at an annual rate roughly identical to its last year’s reading.

Clara pacta, boni amici

All those trade surpluses and deficits are reflected in national wealth.

China’s trade surpluses are shown in its net international investment position of $2.92 trillion at the end of this year’s first quarter – a $53.6 billion increase from the previous quarter.

That puts Beijing’s net creditor position in stark contrast to America’s sharply rising external debt.

Indeed, the U.S. net foreign liabilities were $21.28 trillion at the end of March 2024, a $1.43 trillion increase from the fourth quarter of last year.

People who for decades foolishly laughed off America’s soaring foreign debt are beginning to take notice now that the U.S. public debt is rapidly exceeding $35 trillion, or 123.2% of GDP.

Apart from increasing America’s net debtor position, trade deficits also have considerable influence on the U.S. business cycle dynamics and economic growth. Over the last three years, for example, the negative trade balance reduced the U.S. GDP growth by 1.2 percentage points.

For all those reasons, Washington should square its trade accounts with China. That would also eliminate an annual wealth transfer to Beijing of nearly half a trillion dollars.

So, as ancient Romans used to say, “clear agreements, good friends” would be an appropriate place to turn the page with China and start implementing the “win-win cooperation.”

U.S. has addressed China’s brightest red lines

China would then have an optimal choice of seriously stepping up the purchases of U.S. goods and services while slowing down the avalanche of its exports to the U.S. Other choices are also possible, but they would all be of a “lose-lose” variety.

A quest for a more balanced trade would also be an excellent entry point for a discussion of China’s red lines, because trade problems are part of Beijing’s complaint about an impeded “right to development.” That refers to China’s claim that Washington wants to “suppress” and “contain” Chinese economy.

All those questions were directly addressed by President Joe Biden during his meeting with China’s President Xi Jinping in Bali, Indonesia, on November 14, 2022. On that occasion, Biden said that U.S. had no intention to (a) "have a conflict with China,” (b) "seek de-coupling from China,” (c) “halt China's economic development” or (d) “contain China.”

Trade, however, will remain an intricate issue, but China’s contested maritime borders are a much more difficult problem. Beijing would like the U.S. out of that discussion, leaving directly involved Asian neighbors to find appropriate solutions. Washington does not agree with that. The U.S. is a Pacific country. And China’s current territorial claims involve the freedom of air and sea navigation and allegedly sovereign rights of Japan and the Philippines -- countries which are America’s defense treaty allies.

China’s other red lines, such as its system of government and the status of Taiwan, are settled issues -- according to Biden’s statements at the meeting in Bali.

Biden told Xi that “the United States respects China's system and does not seek to change it.” With regard to Taiwan, Biden said that “the United States does not support Taiwan independence, does not support two Chinas or one China, one Taiwan.” And he concluded that “the United States does not seek to use the Taiwan question as a tool to contain China.”

Regardless of the U.S. election outcome next November, Washington should seek a peaceful modus vivendi with China. Solving the trade issue and establishing a more productive relationship with China would help the U.S. to focus on the economy, to heal deep social divisions and, as Democrats pledged in 2012, to do “some nation building right here at home.”