Data for transborder trade flows in the first quarter of this year are showing the fallout from political and military confrontations of the trans-Atlantic community with Russia and China.

That evidence leaves no room for speculations and double speak. The lines are clearly drawn and understood. The losers are disingenuously claiming that they were not naïve. They want us to believe that they were merely testing how far their opponents would go too far.

As things now stand, the partition of trade and financial transactions is set to amplify. The U.S.-led coalition remains on an irretrievable collision course with Russia and China -- and countries that share their political, economic and security positions.

Washington wants to trade less with unfriendly and unreliable partners, and intends to step up the rebuilding of manufacturing industries to reduce imports. China is pointed out as a “difficult” country to work with because of its discriminatory trade policies. That, according to American foreign trade officials, is in sharp contrast with the E.U.

But the Europeans see things differently with respect to China and continue to complain about “protectionist provisions” of the U.S. Inflation Reduction Act.

The first quarter trade data are confirming Washington’s policy change.

The total U.S. goods trade with China during that period declined at an annual rate of 20%, as imports from China fell 28% and America’s trade deficit with China dropped 40%.

China is adjusting to U.S. trade problems

The U.S. trade and investment relations with China are set to worsen considerably in the months and years ahead. In addition to cutting down its impots from China, the U.S. also wants to close China’s access to dual use technologies, such as advanced semiconductors, artificial intelligence and quantum computing. An executive order to that effect could be issued by the White House next week before the G7 summit in Japan on May 19-21, 2023.

The E.U. is the main beneficiary of America’s quest for better and less contentious trade and investment ties. The bilateral trade between the trans-Atlantic allies rose 15.3% in the first quarter as U.S. exports to the E.U. soared 20%, leading to roughly balanced trade accounts.

The U.S.-E.U. trade outlook is good. Europe will be America’s large and growing energy export market, and the U.S. will remain an attractive investment destination for European companies looking for a safe and predictable regulatory environment, expanding markets, cheap energy, access to top technologies and stable supply chains.

The only question here is to what extent will the Europeans follow the U.S. lead on policies designed to restrain China’s global political and economic power projections. China, after all, is a huge and attractive market where the largest European corporations have staked their future. That is particularly the case of German automobile and chemical industries.

Germany, therefore, has limited the E.U. revision of its China trade policies. As a result, the European trading bloc is ruling out any talk of decoupling; it will only seek to lower the degree of reliance on China trade and investments.

That, however, is unlikely to suit Washington. The White House, for example, is sending a new ambassador to Italy whose main task, according to Italian media, will be to “wrestle Italy” from China’s embrace.

Europeans want to hold on to China’s markets

The E.U. has not published yet its trade statistics for the first quarter, but the Beijing numbers are showing a 5.5% annual decline (in dollar terms) of the E.U.-China trade during that period. That is consistent with the declining trend for the first two months reported by the European statistics office (the Eurostat).

Beijing sees the Washington hand in all that and is worried about what it calls “E.U.’s de-risking” policy toward China. This week, China’s Foreign Minister Qin Gang is visiting France, Germany and Norway. Ostensibly, the key topic will be the Ukraine war, but trade and bilateral relations also top the agenda.

Meanwhile, China is expanding its dominating trade position in East Asia, Africa and Latin America. ASEAN countries (the ten East Asian nations) remain its largest trade partner, with a 7.6% increase in bilateral trade during the first quarter and a 19% increase in export sales.

Over the same period, China’s trade with Russia increased 39% and was running at an annual rate of $215 billion. By contrast, the trade business with China’s erstwhile large markets in Japan and South Korea were falling 11.5% and 14.3% respectively.

Russia’s trade with the U.S. and the E.U. is collapsing, reflecting the prospect that Moscow’s western borders will be a permanent source of hostility with the trans-Atlantic community.

China’s large Western market shares are shrinking and, on current evidence, Beijing’s prospects to hold on don’t look good. The status of Taiwan, China’s contested maritime borders and the flammable Korean Peninsula are acute crisis issues with the West.

But all that does not mean that the global economic growth will be severely affected. Barring a direct conflagration between nuclear armed states, the world economy will adjust to changing directions of trade and investment flows.