The US-China trade deal leaves a large American deficit and a permanent collision course – CNBC, CNBC

Looking at the latest US- China trade numbers, one wonders how theagreement announced last weekcould lead to an acceptable balance of bilateral trade accounts.

China’s surplus on its US goods trade in thefirst ten months of this yearwas $ (********************************. 5 billion, and amounted to (************************************% of America’s total trade gap.

During the same period, Beijing slashed US exports to China 5% to $ $ 6 billion. By contrast, Chinese goods sales to the U.S. were more than four times larger at $ 728. 1 billion.

In spite of that,reports indicatethat Beijing promised to increase – over the next two years – its purchases of US goods and services by $ 382 billion.

If that’s all Beijing is offering, its exports to the US would have to be halved from their current annual rate of $ (******************************. 4 billion to reach a meaningful narrowing of the US trade deficit with China.

How likely is that?

The sad truth is that the U.S. will continue to run huge wealth (and technology) transfers to China financed by America’s increasing net foreign debt that will show as net foreign assets on China’s books.

Other big issues – such as intellectual property protection, forced technology transfers, illegal industry subsidies and exchange-rate management – are appearing as declaratory statements rather than clearly defined legal arguments. Their enforcement mechanism takes the form of bilateral consultations at technical levels that could escalate to top echelons in case of serious disagreements.

It is obvious that political expediency took precedence over an agreement to close the US trade gap with China as a matter of American national security.

That clearly transpires from official statements.

Washington is emphasizing China’s promises of larger purchases of farm and other American products, even though reports of $ 200 billion of likely Chinese imports from the US Over the next two years would still leave huge American trade deficits.

China is not mentioning any such promises.Chinese state mediais pointing out that Beijing is a “trade agreement based on the principle of equality and mutual respect,” and that the Expansion of China’s markets will lead to increasing imports of goods and services from abroad “including the United States under the WTO rules as well as market rules and business principles.”

All that sounds like an armistice rather than a credible end to the trade war.

Beijing would do well to realize that large and systematic imbalances on its US trade cannot continue, regardless of who wins American presidential elections next year. Those imbalances are a provocation for a country experiencing a soaringpublic debt of more than $ (trillion, sharply deteriorating current budget conditions, and a calamitousnet foreign investment position of – $ 13 trillion.

It should not be difficult for Beijing strategists to understand that their US trade problem is a major roadblock to any meaningful improvement in the two countries’ deeply troubled relations.

For Beijing, it should all be very simple: buy more, much more from the US , or slash rapidly and radically extravagantly large sales to the US

Why China did not move in that direction early enough to prevent a serious deterioration of its US Ties is part of a geopolitical calculus Beijing may wish to reconsider.

Investors should watch trade numbers for reliable signs of the real value of last week’s agreement.

Meanwhile, Washington will continue to praise its achievements in an election year, even though trade deficits with China will remain far too large to ignore. Trade spats will grind on. And so will other political and security issues the U.S. will pursue in its increasing strategic competition with China.

Any silver lining for financial markets? Yes, a friendlyFederal Reserve, because asset prices will always be determined by the course of monetary policy.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.