Global imbalances: They’re back in focus but mustn’t be misread

The West sees China’ trade surpluses as a major problem but rebalancing solutions lie within the realm of domestic policies

- BARRY EICHENGREEN

On 1 January, France assumed the presidency of the G-7, the hoary club of advanced economies.

Under its presidency, the focus of the group’s agenda will be global imbalances—the current-account surpluses and deficits of China, the US and other countries. Shades of 2006, when global imbalances were last a major concern.

This agenda makes sense politically. If US President Donald Trump and European leaders agree on anything anymore, it may be that China’s trade surpluses are a problem. The focus on global imbalances also deflects attention from France's fiscal problems and allows President Emmanuel Macron to project leadership on the global stage.

Economically, the case remains to be made.

To be sure, US and Chinese imbalances are large. The International Monetary Fund (IMF) puts America’s current-account deficit for 2025 at around 4.6% of GDP, down slightly from its 2006 peak of 6.2%. China’s surplus is down to 3.3% of GDP from 10% in 2006. But China’s share of global GDP has tripled since then (at current prices, which are what matter for internationally traded goods). Multiply China’s surplus by three, as is appropriate for gauging its impact on the world economy, and you get the 2006 surplus ratio.

So, if we focus on the two economies that together account for 40% of global economic output, imbalances are nearly as large as they were in 2006, when they anticipated the global financial crisis two years later.