Global trade imbalances are growing. China, Germany, and a few others run large surpluses. The US runs the world’s biggest deficit. For America, this means either more unemployment or more debt. Neither is good.
Surplus and deficit countries could work together. Surplus countries could spend more at home. Deficit countries could borrow less. However, they disagree on the causes. China blames US spending. The US blames foreign policies. Europe has no clear view.
History shows big imbalances usually end badly. The pain is not shared equally. High debt makes a country more vulnerable. But power can shift the burden elsewhere. China is most vulnerable today. The US has the most power to act. Europe has potential but struggles to use it.
Past imbalances have ended in crisis. Examples include the Great Depression, the Latin American debt crisis, Japan’s 1990s crash, the 1997 Asian crisis, and the eurozone crisis after 2008.
Imbalances become dangerous with rising debt. Protectionism is a symptom, not a cause. Deficit countries suffer when they cannot borrow. Surplus countries suffer when deficits shrink.
Today’s imbalances are very large. Adjustment will be hard. China has high debt and is most at risk. It will try to avoid costs. The US can reduce its deficit.
Europe is in the toughest spot. It is the third-largest economy. But it is divided and slow to act. If the US cuts its deficit and China resists, Europe may be forced to take on the burden.
Once countries stop caring about global costs and start protecting themselves, a smooth solution is unlikely. History shows imbalances always end. The question is how painful it will be, and for whom.
Reference
Pettis, Michael. “A Great Rebalancing Is Coming.” Foreign Affairs, August 28, 2026. https://www.foreignaffairs.com/united-states/great-rebalancing-coming