“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
AI Summary.The eurozone is the world's third-largest economy and second-largest source of demand but lacks the political cohesion to wield that power, given fragmented policymaking institutions and divergent member-state interests. If the US shrinks its trade deficit while China resists cutting its surpluses, Europe could absorb larger deficits by default, risking deindustrialization, rising debt, and weaker growth.
Michael PettisForeign Affairs
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Pettis suggests that if the US reduces its trade deficit while China maintains huge surpluses, a politically fragmented Europe will likely end up absorbing larger deficits, driving reduced competitiveness, deindustrialization, and weaker growth.
Will Europe absorb larger trade deficits if the US shrinks its own?
Core argument: The eurozone ranks as the world's third-largest economy and second-largest source of demand, yet its fragmented policymaking institutions and divergent member-state interests likely deny it the political ability to exercise that economic power.
The eurozone is the world’s third-largest economy and its second-largest source of demand, it has economic power at its disposal, but [likely not] the political ability to exercise this power, given its fragmented policymaking institutions and the often divergent interests of its member states. If the United States is able to reduce its trade deficit and expand its share of global manufacturing while China resists an equivalent contraction in its surpluses, a politically divided Europe could be forced to take on larger deficits almost by default. The costs could include deindustrialization, rising debt, and weaker growth. This process may have begun already.
Takeaways by Macro Roundup® AI
The eurozone ranks as the world's third-largest economy and second-largest source of demand, yet its fragmented policymaking institutions and divergent member-state interests likely deny it the political ability to exercise that economic power.
If the United States reduces its trade deficit and expands its share of global manufacturing while China resists an equivalent contraction in its surpluses, a politically divided Europe could be forced into larger deficits almost by default.
The costs to Europe of absorbing larger deficits could include deindustrialization, rising debt, and weaker growth, a process that may have begun already.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
Imbalances Are Back On The Global Agenda— China's current account surplus remains about the same size relative to the world economy as it was in 2008, while net US liabilities reached 24% of global output in 2024 versus 6% in 2008, with government borrowing now the domestic counterpart of US external deficits. Such imbalances drive protectionist sentiment and have preceded financial crises.
Trade Intervention for Freer Trade— The authors argue the United States should counter surplus countries' trade policies either by restricting their goods exports through tariffs or by restricting their capital inflows through taxes, volume limits, reserve requirements, transaction approvals, or investor eligibility rules. They contend capital controls are a more targeted alternative to uniform tariffs, which impose equal costs on more and less mercantilist countries.
AI Summary.Regression evidence suggests governments can buy current account surpluses: raising the fiscal balance by $1 tends to raise the current account by about $0.30, while issuing $1 of domestic-currency debt to buy foreign-currency assets raises it by roughly $0.50-$0.60. Combining a fiscal surplus with foreign-currency investment, as Norway and Singapore do, yields about $0.80 per $1.
Joseph Gagnon and Nishtha AgrawalPeterson Institute For International Economics
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Using annual data for 146 countries from 1985 – 2024, Gagnon and Agrawal find that a $1 increase in a country’s cyclically adjusted fiscal deficit is associated with a 22–38¢ increase in its current-account deficit, with most of the estimates ~30¢.
Can governments buy current account surpluses with fiscal and currency policy?
Core argument: Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.
Table 1 presents regression results. The evidence strongly suggests that governments can buy current account surpluses. Raising the fiscal balance by $1 tends to raise the current account by $0.30 [Table 1, first row]. Issuing $1 of domestic currency debt to buy foreign-currency assets (foreign exchange intervention) raises the current account anywhere from $0.20 to $1.00, with a value around $0.50 to $0.60 most plausible [Rows 2 though 5]. NOF is Net Official Flows, and NOS is the stock of net official foreign assets. The most powerful policy, as exemplified by Norway and Singapore, is to run a fiscal surplus and invest the proceeds in foreign-currency assets. In that case, $1 buys a current account surplus of around $0.80 or so. The results are supported by annual panel regressions of current accounts and cross-country stock regressions of cumulated current accounts or stocks of net foreign assets. The estimated effects in the panel regressions may be biased down slightly by incomplete modeling of lagged effects.
Takeaways by Macro Roundup® AI
Regression results suggest that raising the fiscal balance by $1 tends to raise the current account by about $0.30.
Issuing $1 of domestic currency debt to buy foreign-currency assets is estimated to raise the current account by $0.20 to $1.00, with $0.50 to $0.60 most plausible.
Combining a fiscal surplus with investment of the proceeds in foreign-currency assets, as Norway and Singapore do, is estimated to buy a current account surplus of around $0.80 per $1.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
The U.S. Trade Deficit: Myths and Realities— Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
The Dangerous Triumph Of Neo-Mercantilism— Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
AI Summary.Asia's $1.5tn trade surplus is larger as a share of world output than at any point since 1945 and is the only large surplus in the global economy. Exchange rates have a meaningful impact on trade balances: China's surplus reached about 10% of its output amid renminbi depreciation, then fell below 2% after a 40% real appreciation.
Brad Setser and Shahin ValléeForeign Affairs
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Noting the strong connection between Asian countries’ currency depreciation and their trade surpluses since the early 2000s, Setser and Vallée argue “exchange rates still matter,” and urge G-7 “currency diplomacy” to fight chronic undervaluation.
Do exchange rates drive the size of trade surpluses?
Core argument: Asia's trade surplus of $1.5 trillion is larger as a share of world GDP than at any point since 1945, and it is the only large surplus in the global economy.
At $1.5 trillion, Asia’s trade surplus is far larger as a share of world GDP than at any point since 1945. It is also the only large surplus in the global economy. Currency moves were central to the development of the trade imbalances that preceded the 2008 global financial crisis. From 2002 to 2005, for instance, the renminbi was tightly linked to a depreciating dollar even as Beijing’s entry to the World Trade Organization turbocharged Chinese exports. The resulting depreciation is a key reason why China’s surplus reached ten percent or so of its GDP—the first China shock. Conversely, the 40 percent real appreciation in the renminbi from 2005 to 2014 was a big reason why China’s surplus fell back to under two percent of its GDP. Exchange rates still matter, and they have a meaningful impact on the balance of trade.
Takeaways by Macro Roundup® AI
Asia's trade surplus of $1.5 trillion is larger as a share of world GDP than at any point since 1945, and it is the only large surplus in the global economy.
The renminbi's tight link to a depreciating dollar from 2002 to 2005, alongside China's WTO entry turbocharging exports, is a key reason China's surplus reached roughly 10 percent of its GDP in the first China shock.
The renminbi's 40 percent real appreciation from 2005 to 2014 was a big reason China's surplus fell back to under 2 percent of its GDP, indicating that exchange rates have a meaningful impact on the trade balance.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
Why Global Imbalances Matter— Countries running persistent trade surpluses, such as China, Germany and Japan, have built their economies around an excess supply of tradeable goods and services, leaving them dependent on deficit countries to absorb it. That dependence gives deficit countries bargaining power and exposes surplus countries to pressure to expand domestic demand.
The U.S. Trade Deficit: Myths and Realities— Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
AI Summary.Foreign holdings of U.S. financial assets are valued at $69tn versus $41tn of U.S. holdings abroad, a gap that has been mounting for decades. With the net liability position in interest-bearing assets at -$15tn, a 1 percentage point rise in interest rates would subtract $150bn from the U.S. net investment income balance.
Matthew Higgins and Thomas KlitgaardLiberty Street Economics
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The US net international investment position worsened by about $16tn between 2019 and 2025, driven by roughly $5.5tn in net inflows and $10tn in valuation losses, as higher rates hit a larger net liability stock, raising interest rate-sensitivity.
How does a growing net liability position affect U.S. investment income?
Core argument: Official estimates put the current market value of foreign holdings of U.S. financial assets at $69tn, against $41tn of U.S. holdings of foreign assets, a shortfall that has been mounting for decades.
Foreign holdings of U.S. financial assets are immense, with official estimates putting their current market value at $69 trillion. U.S. holdings of foreign assets are also impressive but much smaller, at $41 trillion. The shortfall in U.S. foreign assets relative to foreign liabilities has been mounting for decades. Yet U.S. investment income receipts—in profits, dividends, and interest—comfortably exceeded income payments until recently. Payments on U.S. assets owned by foreign investors represent a servicing burden for the U.S. economy. Profits, dividends, and interest payments that would otherwise accrue to domestic investors instead flow abroad. Given the need to sell U.S. assets to finance ongoing trade deficits, this servicing burden seems likely to mount. The related buildup in the U.S. net liability position in interest-bearing assets will also make the income balance more sensitive to swings in interest rates. This increased sensitivity is already in evidence. At present, with the asset-liability gap at -$15 trillion, a 1 percentage point increase in U.S. and foreign interest rates would subtract $150 billion from the U.S. net income balance. (A 1pp fall in rates would result in a similar improvement.) Only five years ago, a 1 percentage point rise in rates would have subtracted $100 billion.
Takeaways by Macro Roundup® AI
Official estimates put the current market value of foreign holdings of U.S. financial assets at $69tn, against $41tn of U.S. holdings of foreign assets, a shortfall that has been mounting for decades.
With the U.S. asset-liability gap in interest-bearing assets at -$15tn, a 1 percentage point rise in U.S. and foreign interest rates would subtract $150bn from the U.S. net income balance, compared with $100bn five years ago.
U.S. investment income receipts in profits, dividends, and interest exceeded income payments until recently, and the servicing burden on foreign-owned U.S. assets seems likely to mount given the need to sell U.S. assets to finance ongoing trade deficits.
Related Articles:
Understanding Global Imbalances— The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
Tariffs and “International Payments Problems”— Foreigners are accumulating more financial claims on Americans than Americans are on foreigners across direct investment, stocks, bonds, currency, deposits, and loans, and the U.S. net international investment position has moved from -20% of GDP in 2010 to -89%. Almost all of that swing reflects valuation gains on U.S. stocks rather than added borrowing.
Foreigners Rebuff ‘Sell America’ and Buy a Net $1.6 Trillion in Assets— Treasury Department data show overseas investors bought a net $1.55tn of long-term US financial assets, up from $1.18tn the prior year, including $720bn in equities and just under $409bn in Treasury notes and bonds. China was a net seller of $208.6bn, with its Treasury holdings ending at $683.5bn.
AI Summary.The European Union's Industrial Accelerator Act would let member states veto foreign investments above €100mn in strategic sectors such as batteries, electric vehicles, solar panels and critical raw materials when the investor comes from a country holding over 40% of global manufacturing capacity, unless conditions on local jobs, joint ventures, intellectual property, research spending and local sourcing are met.
Barney Jopson, Joe Leahy and Ian JohnstonFinancial Times
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The EU’s “Made In Europe Act” would condition Chinese market access on IP transfers, FDI and joint ownership in strategic sectors. A Rhodium analysis found there was ~$12B of Chinese greenfield investment in European factories in 2025, 3x the 2022 level.
Should Europe block foreign investment in strategic manufacturing sectors?
Core argument: The EU's Industrial Accelerator Act would let member states veto any foreign direct investment above €100mn in strategic sectors when the investor comes from a country holding more than 40% of global manufacturing capacity.
[The EU's] Industrial Accelerator Act (IAA) [will allow] member states veto any FDI exceeding €100mn in strategic sectors if the investor is from a country with more than 40% of global manufacturing capacity. Those sectors include batteries, EVs, solar panels and the extraction and processing of critical raw materials — all areas where China dominates. To win approval, investment projects must fill at least half of their jobs with EU workers and satisfy three of five other conditions. One is that the investment must be undertaken via a joint venture. Another is that the foreign partner does not own more than 49% of the entity — a condition unpopular with Chinese companies, according to European officials. Other conditions cover the licensing of intellectual property rights, spending 1% of revenue on research and development in the EU, and publishing a strategy for sourcing 30% of inputs from the bloc.
Takeaways by Macro Roundup® AI
The EU's Industrial Accelerator Act would let member states veto any foreign direct investment above €100mn in strategic sectors when the investor comes from a country holding more than 40% of global manufacturing capacity.
The sectors covered by the Industrial Accelerator Act include batteries, EVs, solar panels, and the extraction and processing of critical raw materials, all areas where China dominates.
Related Articles:
Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push— Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.
How German Industry Can Survive the Second China Shock— The European Union has 30mm manufacturing jobs, and China has grown from a $4tn economy producing under 15% of global manufacturing output to an $18tn economy producing over a third, with well over 50% of global capacity in many sectors. European tariffs on Chinese electric vehicles limit import competition but do not offset lost export markets.
Places versus People: The Ins and Outs of Labor Market Adjustment to Globalization— Analysis of U.S. register data finds that employment levels in places exposed to Chinese import competition more than fully rebound, while employment-to-population ratios stay depressed and manufacturing employment continues to shrink. The authors find the recovery comes almost entirely from young adults and foreign-born immigrants taking first jobs in lower-wage service sectors, with both in- and out-migration remaining depressed.
AI Summary.Ford's chief executive argues Chinese carmakers should be barred from the US market, contending that large direct government support lets them undercut prices and that camera-equipped Chinese vehicles collecting data pose national security risks. He has told US officials that Chinese automakers building cars in America should be required to form joint ventures controlled by US automakers.
Keith NaughtonBloomberg
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Jim Farley the CEO of Ford, argued that allowing Chinese automakers into the American market would be “devastating” to American manufacturing. The US currently has a 100% tariff on Chinese-made electric vehicles.
Should Chinese carmakers be barred from the US market?
Core argument: Ford CEO Jim Farley warned of national security risks from technology-laden Chinese vehicles on US roads, saying "All of these vehicles have 10 cameras" and "They can collect a lot of data.".
The Ford leader contends the “huge direct support” Chinese carmakers receive from their government gives them an unfair advantage to slash prices and decimate domestic automakers in the US, “There is no way this is a fair fight.” Farley also warned of national security risks from allowing technology-laden Chinese vehicles to navigate US roads. “All of these vehicles have 10 cameras,” Farley said. “They can collect a lot of data.” President Donald Trump in January told the Detroit Economic Club he was willing to “let China come in” as long as they built factories and hired American workers. Farley subsequently told administration officials that Chinese carmakers should have to form joint ventures where US automakers hold controlling stakes in order to build cars in America, Bloomberg has reported.
Takeaways by Macro Roundup® AI
Ford CEO Jim Farley warned of national security risks from technology-laden Chinese vehicles on US roads, saying "All of these vehicles have 10 cameras" and "They can collect a lot of data.".
President Donald Trump told the Detroit Economic Club in January he was willing to "let China come in" if Chinese carmakers built factories and hired American workers.
Farley told administration officials that Chinese carmakers should be required to form joint ventures in which US automakers hold controlling stakes in order to build cars in America, Bloomberg has reported.
Related Articles:
Canada and China Slash Tariffs As They Mend Ties After Years Of Dispute— Canada agreed to accept 49,000 Chinese electric vehicles at a 6.1% tariff, down from 100%, while China will cut its levy on Canadian canola seed to 15% from an effective rate of about 85%. Canada's canola exports to China were valued at nearly C$5bn (US$3.6bn), and Canada's original 100% electric vehicle tariff was adopted at Washington's urging.
Will China Take Over the Global Auto Industry?— The global auto market has historically been regional, with most cars sold in a region also built there. Overcapacity in China's internal combustion sector, expanding electric-vehicle capacity, ample state bank credit, and a weaker yuan could concentrate global auto production in China absent restrictions such as the US 100% tariff on Chinese electric vehicles.
Cheap Chinese Cars Are Taking Over Roads From Brazil to South Africa— Inexpensive cars from Chinese makers such as BYD, Chery, Great Wall and SAIC are gaining share in emerging markets, reaching nearly 10% of sales in South Africa, 8% in Turkey and close to a third in Chile. Chinese automakers' market share outside China is projected to rise to 13% by 2030 from 3%.
AI Summary.Foreign official purchases of dollars are too small to mirror the US current account deficit, and net official financial inflows have fluctuated around zero even as the deficit widened; the euro area runs a current account surplus despite the euro's reserve role. The author argues materially reducing the US fiscal deficit is the key policy prerequisite for global rebalancing.
Maurice ObstfeldPeterson Institute for International Economics
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Noting the minimal relationship between official liabilities and the CA, Obstfeld argues that the reserve currency role of the dollar is not the cause of the trade deficit. He urges reduction in the US fiscal deficit to increase national saving.
Does the dollar's reserve role drive the US current account deficit?
Core argument: US net incurrence of liabilities to official foreign holders over 2003–25, measured as a share of GDP, is usually far too small to mirror the US current account deficit, contradicting claims that official dollar purchases feed one-for-one into it.
Critics of the dollar's global role have argued that foreign official dollar purchases (labeled US incurrence of official liabilities in the figure) feed one-for-one into US current account deficits. To illustrate the true loose relationship between these two variables, the figure shows both of them over the 2003–25 period, as percentages of GDP. US net incurrence of liabilities to official holders, reported with a minus sign as in standard balance-of-payments methodology, is usually far too small to mirror the US current account deficit. And since roughly 2014, net official financial inflows have fluctuated around zero as the current account deficit has widened. To be sure, the strong international demand for dollars may make the dollar stronger against foreign currencies than it would be otherwise, [but] while they imply a smaller current account balance, they do not necessarily imply a negative balance and certainly not a rising negative balance, especially when foreign dollar reserve holdings have been shrinking relative to global economic activity (as figure 1 also implies). The euro is the world's second reserve currency, yet the euro area has a current account surplus. Britain had surpluses up until World War I despite issuing the world's premier global currency and hosting its leading financial center. Reducing the US fiscal deficit materially and sustainably is the most important US policy prerequisite for global current account rebalancing.
Takeaways by Macro Roundup® AI
US net incurrence of liabilities to official foreign holders over 2003–25, measured as a share of GDP, is usually far too small to mirror the US current account deficit, contradicting claims that official dollar purchases feed one-for-one into it.
Since roughly 2014, US net official financial inflows have fluctuated around zero while the US current account deficit widened, and foreign dollar reserve holdings have been shrinking relative to global economic activity.
The euro area runs a current account surplus despite the euro's status as the world's second reserve currency, and Britain ran surpluses until World War I while issuing the premier global currency and hosting its leading financial center.
Related Articles:
US Notches One of Its Biggest Annual Trade Gaps Since 1960— The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.
The U.S. Trade Deficit: Myths and Realities— Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
Pettis on Obstfeld— Pettis argues that saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are driven by their own domestic policies and conditions, and in turn drive the US saving rate. He notes the US has an open capital account, deep financial markets, and limited intervention in credit allocation.
AI Summary.The US, China, Germany, and Japan account for roughly two-thirds of global current account imbalances, with the US deficit at 4% of GDP financed by capital inflows into dollar assets. The average duration of a surplus or deficit spell roughly doubled since the 1980s, building large net foreign asset and liability positions.
IMF StaffInternational Monetary Fund
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As of 2024, the US, China, Germany, and Japan accounted for ~2/3 of total global imbalances (the sum of the absolute value of each economy’s current account deficit and surplus). The US CA deficit is between 0.8 and 1% of world GDP.
How persistent are global current account imbalances and which economies drive them?
Core argument: The US, China, Germany, and Japan together account for roughly two-thirds of global imbalances, with the US deficit equal to 4% of GDP in 2024, financed by capital inflows and portfolio investors seeking dollar assets.
Four economies—the US, China, Germany, and Japan—account for roughly two-thirds of global imbalances. The US deficit—equivalent to 4% of GDP as of 2024—has been financed by capital inflows and portfolio investors seeking dollar assets. Germany and Japan’s surpluses have been driven by high saving rates, joined by substantial surpluses in China beginning in the 2000s. Oil-exporting countries’ surpluses fluctuate with commodity prices, creating episodic contributions to global imbalances. In earlier decades, surpluses and deficits were more cyclical: countries moved in and out of surplus depending on business cycles, commodity shocks, and exchange rate movements. While there is no standard definition of persistence, the average duration of a deficit or surplus spell roughly doubled since the 1980s. Persistent surpluses over the past two decades have accumulated into very large net foreign asset positions for economies such as China, Germany, and Japan, with each holding net foreign assets equivalent to 3–3.5% of global GDP in 2024. Similarly, persistent deficits have built up into large net liability positions, most notably in the US where the NIIP stands at about -25% of global GDP in 2024, underscoring the central role of the US position in global balances (Figure 6).
Takeaways by Macro Roundup® AI
The US, China, Germany, and Japan together account for roughly two-thirds of global imbalances, with the US deficit equal to 4% of GDP in 2024, financed by capital inflows and portfolio investors seeking dollar assets.
The average duration of a deficit or surplus spell roughly doubled since the 1980s, when countries moved in and out of surplus with business cycles, commodity shocks, and exchange rate movements.
China, Germany, and Japan each held net foreign assets equivalent to 3–3.5% of global GDP in 2024, while the US net international investment position stood at about -25% of global GDP.
Related Articles:
The Dangerous Triumph Of Neo-Mercantilism— Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
Debt, Deficits & Global Imbalances— Taxes or restrictions on short-term capital inflows were argued to be a more direct and potentially superior tool than tariffs for shrinking the trade deficit, since tariffs risk retaliation and supply-chain distortions. Proponents said such measures could reduce reliance on household and government borrowing to sustain employment, if paired with efforts to strengthen domestic demand and tradables capacity.
US Notches One of Its Biggest Annual Trade Gaps Since 1960— The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.
