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Donald Trump’s views on the trade deficit are not a passing fad. But his preoccupation with the deficit is widely regarded as misplaced – it focuses only on America’s merchandise trade deficit while disregarding the services surplus, and it ignores that the overall US trade deficit is largely due to macroeconomic forces. Despite this misguided fixation, Trump’s obsession with it has only seemed to grow.

Notably, the president’s recent decision to help the Chinese telecommunications giant ZTE ‘get back into business’ shows how his concern over the trade deficit takes priority in his thinking. His move came after the Commerce Department banned American companies from selling components to ZTE for seven years because it broke the terms of a sanctions violation settlement. The rescue of the firm is tied to a ‘larger trade deal’ that the US is trying to negotiate with China. A major US demand in such a grand bargain is for China to cut its trade surplus by $200 billion.

A deal that is primarily focused on the bilateral trade balance, however, would likely fail to address more fundamental structural issues such as China’s weak protection of intellectual property rights or forced technology transfer. While the Trump administration has threatened to impose tariffs on up to $150 billion worth of Chinese goods over concerns about intellectual property theft and forced technology transfer, the ZTE overture suggests that the administration is becoming less strident on these issues.

The ZTE case also shows that for Trump, a deal that reduces China’s trade surplus supersedes national security concerns. The move to help the Chinese company ignores warnings about ZTE’s potential threat to US national security. A 2012 US House of Representative Intelligence Committee report concluded that ‘ZTE cannot be trusted to be free of foreign state influence and thus pose[s] a security threat to the United States.’

President Trump’s overriding concern for reducing the US trade deficit does not just play out in his deal making efforts with China, but has implications for trade discussions with North America and Europe.

Improving the US trade deficit – in particular the $71 billion goods trade deficit with Mexico – is the primary goal for the US in the ongoing renegotiations for the North American Free Trade Agreement. But this narrow focus has complicated the talks, imperilling the chance of a deal in 2018.

The US trade deficit with major European trade partners – foremost, the $64 billion goods trade deficit with Germany – has long drawn Trump’s ire. But his preoccupation with the trade deficit undercuts his administration’s arguments that mooted steel and aluminium tariffs against the EU are related to national security. If the EU gets hit with the tariffs, it is ready to fight back. In the meantime, it has signalled willingness to discuss new trade incentives in return for a permanent exemption.

What then can Europe, Mexico and others do to engage productively and overcome Trump’s obsession with trade deficits?

For the Europeans, deeper transatlantic energy cooperation – notably increasing imports of US liquefied natural gas – could help to improve the trade balance with the US. Better reciprocal market access for industrial products, including cars, is another option. While European leaders should continue to explain to the Trump administration that bilateral trade deficits are not a good metric, it would be helpful if Germany acknowledged the valid concerns regarding its overall structural trade surplus (which have also been voiced for years within the EU and by the IMF).

Mexico’s solutions to addressing the US trade deficit could also focus on expanding energy cooperation as the country is a crucial export market for the US. Moreover, a more accurate representation of the trade balance could be beneficial. Using the ‘trade in value added’ accounting method would better reflect the highly integrated nature of US-Mexican trade and the fact that 40 per cent of Mexican ‘exports’ to America actually originate in the US. Though this method to reduce the US trade deficit with Mexico would only be skin-deep, it might be enough to satisfy Trump in a face-saving deal.

After all, the ZTE case has shown that Trump is willing to hand out concessions in bargains that slash the US trade deficit. Other negotiators should take note.