Attempting to use “rebalancing” as an excuse for applying pressure on another country or for excluding a particular country from established rules can only exacerbate the rise of global protectionism and economic fragmentation.
Global economic imbalances have once again emerged as a focal issue on the agenda of the G7 and G20. Such imbalances are real and structural in nature. Their formation and evolution are shaped by a complex interplay of factors, including the global division of labor, the international monetary system and differences in national savings and investment patterns. They are neither the product of, nor controllable by, any single country. Attempting to use “rebalancing” as a justification for unilateral pressure or the exclusion of a particular country from established rules can only exacerbate the rise of global protectionism and economic fragmentation.
With China’s trade surplus surpassing the $1 trillion mark for the first time, concerns over global economic imbalances have resurfaced across the international community. Some observers have even equated the large surplus with a new “China shock” or a broader “China threat.” In reality, the sizeable trade surplus is not the product of policy manipulation. Rather, it reflects the country’s deep integration into global value chains. Over the past several decades, China evolved into a global manufacturing hub by leveraging its comprehensive industrial ecosystem, highly developed production networks and world-class infrastructure. Large volumes of intermediate goods flow from economies such as Japan, South Korea, and Taiwan, into China for processing and assembly before final products are exported to markets in Europe and North America.
Using traditional trade calculations based on rules of origin, intermediate goods are often counted multiple times as they move across borders at different stages of production. As a result, a significant portion of the value created throughout the regional supply chain is ultimately recorded as Chinese exports, contributing to an overstatement of its overall trade surplus.
Structurally, China’s foreign trade has long been characterized by deficits in primary commodities and surpluses in manufactured goods. Large-scale imports of energy resources and commodities coexist with the robust export of industrial products. In recent years, as China’s trade competitiveness has continued to strengthen and the value-added content of its exports has risen, shipments of high-tech and green, low-carbon products have expanded at a pace significantly faster than overall export growth. High-end equipment such as industrial robots has also become a net export category, indicating that China’s trade surplus is increasingly driven by technological advancement and industrial upgrading rather than by low-cost factors of production. In this sense, the surplus reflects differences in countries’ positions within global value chains and their respective stages of economic development, rather than any form of predatory trade practice on China’s part.
More fundamentally, global economic imbalances are not confined to trade balances alone; they are also reflected in financial and structural imbalances within the international monetary system. Under the dollar-centered monetary order, the United States enjoys a unique set of financial privileges by supplying the world’s principal reserve asset and providing global dollar liquidity. As a result, it has been able to accumulate substantial external liabilities while continuing to benefit from seigniorage and exceptionally low borrowing costs.
Despite a persistently negative net international investment position and a steadily expanding federal debt burden, the United States has avoided sovereign debt crises that might be expected under similar circumstances. A key reason lies in the dominant role of the dollar in the global economy. More than half of the world’s foreign-exchange reserves and a large share of international trade continue to be denominated and settled in dollars. Countries that run trade surpluses with the United States often reinvest their dollar earnings in U.S. Treasury securities and other dollar-denominated assets, creating a self-reinforcing cycle in which global demand for dollar assets helps finance America’s growing debt obligations.
At the same time, the United States has long exhibited a combination of low domestic savings, persistent fiscal deficits and gradual industrial hollowing-out. High levels of household consumption and government spending have kept aggregate demand consistently above domestic supply, making imports an essential mechanism for closing the gap. Meanwhile, the offshoring of manufacturing and the global allocation of capital by multinational corporations, driven by considerations of efficiency and resource optimization, have further amplified the domestic supply-demand mismatch.
In fact, global economic imbalances are far from a new phenomenon. Concerns over the issue reached a peak during the 2008 global financial crisis. Today, however, the underlying drivers of economic imbalances, the geopolitical environment in which they unfold and the risks they pose have all undergone profound changes.
In recent years, economic imbalances have increasingly evolved from an economic concept into an instrument of geoeconomic competition. In the name of “correcting imbalances,” some countries have imposed additional tariffs on Chinese products, launched subsidy investigations into industries where China enjoys competitive advantages and introduced technical, environmental, or regulatory barriers aimed at restricting market access. The underlying objective is often to constrain its movement up the global value chain and limit its industrial upgrading through regulatory and institutional means. Such measures are unlikely to address the root causes of global economic imbalances. Instead, they risk accelerating fragmentation and deepening institutional divisions within the global economy.
Recent assessments by the International Monetary Fund indicate that, following the COVID-19 pandemic, the absolute scale of both global current account surpluses and deficits had increased. Compared with the period of the 2008 global financial crisis, when imbalances were largely characterized by a “bipolar” configuration centered on the United States and China, the current landscape of global imbalances has become more multipolar, increasingly bloc-like and more persistent in nature. The United States continues to run widening external deficits, while China maintains a substantial current account surplus. Within the euro area, significant divergence is also evident, with countries such as Germany and the Netherlands remaining persistent surplus economies, in contrast to deficit economies such as France and Italy.
Geopolitical fragmentation and bloc-based supply chain restructuring are increasingly locking in structural global imbalances. Through policies such as “re-shoring,” “friend-shoring” and “near-shoring,” the United States and Europe aim to enhance the security and resilience of industrial and supply chains. However, these measures have also led to efficiency losses, higher production costs, and upward pressure on medium- to long-term inflation.
At the same time, the bloc-based reconfiguration of high-technology supply chains has increased the overall cost of global innovation, resulting in a net welfare loss at the global level. For so-called “alternative manufacturing hubs” such as India, Vietnam and Mexico, being positioned between competing geopolitical blocs often entails de facto pressure to align with one side or another. This, in turn, exposes their industrial strategies to political cycles and reduces their ability to develop sustainable comparative advantages.
Empirical evidence suggests that large-scale tariff measures have been of limited effectiveness in correcting global imbalances. Tariffs function as a negative supply shock: They raise production and import costs and dampen trade and investment flows, while exerting only a marginal impact on the structural determinants of a country’s current account balance. In many cases, they primarily reallocate trade flows across partner countries rather than producing a meaningful reduction in overall external deficits.
In 2025, for example, even as its trade deficit with China declined significantly, the United States’ overall trade deficit still reached a record high. This outcome underscores a key point: using tariffs as a tool to address global imbalances tends to reshape the geographic distribution of deficits rather than resolve the underlying structural drivers of imbalance itself.
Global economic imbalances cannot be created by any single country, nor can they be corrected through unilateral pressure. An effective rebalancing process must be guided by the principles of reciprocity and shared responsibility, rather than assigning blame to surplus economies alone.
For one thing, major surplus economies should reduce excessive reliance on external demand by steadily expanding domestic demand, improving income distribution, strengthening social safety nets and alleviating excessive precautionary saving motives. Economic growth would then become more anchored in domestic markets, enabling these economies to participate in the global division of labor in a more balanced manner. For another, major deficit economies should address structural imbalances driven by consumption and investment gaps by reducing excessive fiscal expenditures, raising national saving rates, and rebuilding manufacturing capacity and the broader real economy.
Such efforts should rely on multilateral mechanisms such as the World Trade Organization, the International Monetary Fund and the G20 to build a global governance architecture that ensures the full participation of both surplus and deficit economies.
In the field of trade, accelerating the modernization of the WTO is essential, alongside strengthening institutional safeguards for the legitimate development rights of Global South countries, and preventing a “rebalancing” agenda from being distorted into exclusionary rules crafted by narrow blocs. In the financial domain, the reform of global financial governance should be steadily advanced, including improvements in the international reserve currency system and a gradual reduction in excessive dependence on any single currency. This would help mitigate the destabilizing effects of cyclical dollar liquidity fluctuations on global capital flows and macroeconomic stability.
Global economic rebalancing cannot be achieved through zero-sum competition, nor can it be imposed through coercion. Only by abandoning bloc confrontation and pursuing coordinated reforms within multilateral frameworks can countries achieve a fair, orderly, and sustainable global rebalancing, thereby ensuring that the benefits of globalization are more equitably distributed both among countries and across different social groups within countries.
