Best Bet for 2025: Stronger Trade Ties Between Europe and China

One development for 2025 that can be seen clearly in the crystal ball is improving trade ties between China and Europe. The reason this is a virtual certainty is Donald Trump is doing everything he can to convince the world that, under his leadership, the United States is an unreliable trading partner.

He already worked hard to establish this point in his first term when he arbitrarily slapped tariffs on various imports from Canada and the European Union. His ostensible rationale was national defense, but no one outside of Mar-a-Lago could take that one seriously. We worried that we may not be able to get steel from Canada if the US is engaged in a war with another country? Or maybe we’re worried we will be at war with Canada, and they will cut us off.

But Trump is showing that the craziness will get even worse in his second term. Before even taking office Trump made strong demands that Canada and Mexico essentially do things they are already doing (block drug shipments and restrict the flow of immigrants) or he will slap 25 percent taxes on all the goods we import from them.

This is bizarre from many angles, but most notably because Trump’s proposed import taxes would be a flagrant violation of the trade agreement he negotiated with Mexico and Canada just four and a half years ago. If Trump can just toss into the garbage a trade deal with two of our closest allies — one that he widely trumpeted at the time — then what would be the value of any deal he would strike with European countries? Clearly Trump does not feel bound by his commitments and there is no one in the US political structure who can force Trump to adhere to agreements made by the government, even when it was Trump himself who made the deal.

This is the way Trump has always done business. He routinely reneged on his commitments and often refused to pay contractors after they had done work on his projects. Many contractors would insist on payment in advance from Trump because they knew they would have a tough time collecting after the fact.

If the US is not going to be a reliable trading partner for at least the next four years, and possibly many more years into the future, Europe would be wise to look elsewhere. And there is one obvious elsewhere: China.

China’s economy is in fact already considerably larger than the US economy and growing far more rapidly. This fact is obscured by the tendency in the US media to use exchange rate measures of GDP, rather than purchasing power parity (PPP) measures.

An exchange rate measure simply takes a country’s GDP, measured in its own currency, and then converts it into dollars at the current exchange rate. By contrast, a PPP measure uses a common set of prices to assess the value of all the goods and services produced in each country. This would mean that we apply the same price for a car, a computer, and a haircut, in both the US and China. Economists would usually argue that for most purposes the PPP measure is more useful.

By this measure, China’s economy grew larger than the US economy roughly a decade ago. It is now almost 30 percent larger, and according to I.M.F. projections will be more than 40 percent larger by the end of the decade. It’s not clear why the U.S. media insists on using the exchange rate measure of GDP in reporting that routinely refers to China as the world’s second-largest economy, perhaps it’s just nationalistic chauvinism. In any case, that call reflects political biases not realities in the world.

The larger size of China’s economy makes it a more attractive trading partner in any case, but it is also more likely to stick to its commitments than the United States as long as Donald Trump is in charge. For this reason, we can be fairly certain that Europe will be looking to shore up its trade relations with China as Donald Trump puts on his clown show in Washington and Mar-a-Lago.