On January 1, France assumed the presidency of the G-7, reviving a familiar but contentious theme in global economic governance: global imbalances. The renewed focus on current-account surpluses and deficits—especially those of the US and China—evokes memories of 2006, when similar anxieties preceded the global financial crisis. Yet the economic logic behind this agenda is far less clear than its political appeal.
Why Global Imbalances Are Back on the Agenda
For France, spotlighting global imbalances serves multiple purposes. It aligns Paris with Washington and European partners who increasingly see China’s trade surplus as problematic, and it shifts attention away from France’s own fiscal constraints. For leaders like , it also offers a platform to project international leadership at a time of fragmented global cooperation.
The convergence with Donald Trump’s long-standing critique of trade deficits gives the agenda added political momentum, even if the underlying economics remain contested.
How Large Are Today’s Imbalances, Really?
According to the , the US current-account deficit in 2025 stands at around 4.6% of GDP, below its 2006 peak. China’s surplus, meanwhile, has fallen sharply from about 10% of GDP in 2006 to roughly 3.3% today.
However, China’s share of global GDP has tripled since then. When adjusted for its much larger economic weight, China’s surplus has a global impact comparable to its pre-2008 levels. Together, the US and China now account for roughly 40% of global output, meaning that imbalances between them still matter systemically.
Lessons from the Global Financial Crisis
The parallels with 2006 are tempting, but potentially misleading. The global financial crisis was driven less by current-account imbalances and more by reckless risk-taking, opaque financial products, and lax regulation. Today’s financial vulnerabilities—ranging from private credit markets and crypto-assets to relaxed bank supervision in the US—arise largely from similar regulatory and transparency gaps.
Crucially, these risks are neither direct causes nor clear consequences of global imbalances. The danger lies elsewhere.
When Investment, Not Saving, Drives Deficits
One partial link emerges in the surge of US investment in data centres and semiconductor manufacturing. Such investments accounted for nearly 80% of the increase in US private domestic demand in early 2025. Since the current-account deficit reflects excess investment over saving, high investment mechanically widens the deficit.
This recalls the Lawson Doctrine, named after Nigel Lawson, which argued that deficits are benign if driven by productive investment rather than weak saving. The caveat, learnt painfully after 2008, is that investment must generate sustainable returns. Doubts about the profitability and longevity of AI-related infrastructure—energy-intensive data centres and rapidly obsolescing chips—raise uncomfortable questions.
China’s Surplus: A Different Kind of Problem
China’s imbalance stems less from underinvestment than from excessive saving. Despite official recognition since the 12th Five-Year Plan (2011–15) that consumption must rise, household and corporate savings remain high. Much of this capital has flowed into low-return projects and real estate, fuelling financial stress among local government financing vehicles and property developers.
China’s relatively closed financial system and ample state capacity reduce the risk of global contagion. But the external impact of its surplus is unevenly distributed.
The Political Economy of the “China Shock”
The earlier surge of Chinese exports showed how concentrated trade shocks can destabilize specific regions and sectors, provoking populist backlash against globalization. With the US market increasingly closed to Chinese goods, Europe and other regions may now absorb a larger share of these exports.
This comes at a time when multilateralism is already strained by US-China strategic rivalry and transatlantic tensions, magnifying the political fallout.
Solutions Begin at Home
The remedies lie largely within national borders.
- The US can reduce public-sector dissaving by raising taxes, closing loopholes, and strengthening financial regulation.
- China can boost consumption by expanding social safety nets, reducing precautionary household saving.
The IMF has conveyed these prescriptions repeatedly. Whether political systems act on them is another matter.
What to Note for Prelims?
- Definition of current-account surplus and deficit
- Role of the G-7 in global economic coordination
- Lawson Doctrine on current-account deficits
- China Shock and its political effects
What to Note for Mains?
- Critically examine the relevance of global imbalances today
- Distinguish between investment-driven and saving-driven deficits
- Analyse trade imbalances in the context of populism and multilateralism
- Assess policy options for the US and China to correct imbalances