As the trade impasse with China continues, it is worth trying to think about some paths for what comes next. The US administration has a raft of complaints around issues of the bilateral trade deficit, export penetration, tighter intellectual property protections for US innovation and state support for business.

First thing to note, for all the partisan rancor in the US, and the Trump hating in Europe, it feels like this is one issue that has rapidly become consensus – China finds few friends on these issues in DC, Europe, Wall St or the corridors of power in American business. By way of example, in late March 2018 the US, through the WTO, filed a Request for Consultations with China concerning tech IP rights. In early April, the EU and Japan amongst others formally requested to join the Consultations. By June, the EU had filed an expanded Request.

For argument’s sake, let’s assume from here that through the negotiating of US Trade Representative Lighthizer – who has spent decades detailing these issues and working in the area – a deal of some sort could be worked out to open markets, provide better safeguards and fulfill more of the responsibilities that came with WTO membership, but were not properly implemented. Although different in many technical ways than the Plaza Accords, you wonder if the currency could be a part of it. President Trump would rightly and certainly take these as victories – he could claim to have fulfilled a campaign promise on holding unfair trading practices to account and hope to see the trade deficit drop. This would be the best case scenario clearly, and maybe a stretch. It is an enormous trade deficit, unwinding it may be incredibly difficult when you get into the weeds of what would actually have to be bought on each side – one would assume just having the deficit shift to a different country wouldn’t help the guys in the Midwest President Trump campaigned to. But humor us for now.

Where would Lighthizer go next? After the smaller deal with South Korea, a signed NAFTA 2.0 and a China agreement does he hang up his spurs? Or ride on to a new frontier? If the latter, Berlin would be at the top of his list. If he is looking for problematic global imbalances, he need look no further. A 7.5% of GDP trade surplus is no small thing. Former Federal Reserve Chair Ben Bernanke wrote wonderfully about this here. It boils down to tight fiscal policies that reduce domestic spending and the impact of the Euro, which is an enormous benefit to the Germans. The US has fired the opening salvos in this battle, with car tariffs and non-trade barriers. These may be enough to reduce the trade deficit at the margin, but it does beg the question – if it took a Plaza accord in the 1980s, and the picture above is right that the currency is involved with China, what can be done about the two big issues with Germany? The currency lever is structurally out of bounds, and the debt to GDP caps and fiscal rules are sacrosanct. This should be the next fight…but it is harder to see an end game. Maybe Trump extracts a few concessions and moves on, but for a true believer like Lighthizer who seems to want to really deal with the issues – what can work?