Introduction
At the beginning of January, France assumed the presidency of the G7, the former club of advanced economies. Under its leadership, the group’s agenda will focus on global imbalances: the current account surpluses and deficits of China, the United States, and other countries. This topic was a significant concern last addressed in 2006.
Political Significance
The agenda has political sense. Both President Donald Trump and European leaders agree that China’s surpluses pose a problem. Focusing on global imbalances also diverts attention from France’s fiscal issues, allowing President Emmanuel Macron to project leadership on the global stage.
Economic Viability
In economic terms, the viability remains to be proven. Indeed, the imbalances between the U.S. and China are substantial. The International Monetary Fund estimates that the U.S. current account deficit will be around 4.6% of GDP by 2025, slightly below its peak of 6.2% in 2006. China’s surplus has decreased from 10% of GDP in 2006 to 3.3%. However, China’s share of global GDP has tripled since then (at current prices, which matter for internationally traded goods).
If we triple China’s surplus to measure its impact on the global economy, as appropriate, we get the 2006 surplus ratio. Thus, focusing on these two economies, which together account for 40% of global GDP, the imbalances are nearly as large as in 2006, when they foreshadowed the global financial crisis two years later.
However, reckless risk-taking, insufficient transparency, and lax financial regulation, not global imbalances, were the root causes of that crisis. Today, financial stability risks abound: in private credit, cryptocurrencies, circular financial flows related to data centers and semiconductor investments, and looser bank supervision in the U.S.
These risks are not causes or consequences of global imbalances. In private credit, the issue remains a lack of transparency. In cryptocurrencies, it’s inadequate regulation. In bank supervision, it’s the influence of the banking lobby.
Link Between Global Imbalances and Financial Risks
The only link between global imbalances and economic and financial stability risks is in data center and chip investments. Such investments accounted for 80% of the increase in U.S. private final domestic demand in the first half of 2025. The U.S. current account deficit is the excess of investment over savings. Therefore, if investment were less, the U.S. current account deficit would be smaller, all else being equal. Of course, U.S. growth would also be lower, which wouldn’t benefit the U.S. or the world.
Lessons from the Past
This situation also reminds us of the Lawson Doctrine, named after Nigel Lawson, the second Chancellor of the Exchequer in Margaret Thatcher’s British government. Lawson argued that current account deficits are benign if they reflect high investment rather than low savings. Later, we learned that investment-driven deficits are benign only if the investments are productive.
Anticipating current doubts about the profitability of AI investments, especially in high-energy consumption data centers using chips that burn out or become obsolete in two to three years, seeing tech companies use specialized financial instruments to borrow, segment the resulting obligations, and sell them to institutional investors will be unsettling for those with a 20-year memory.
In China’s case, the problem isn’t too little investment but too much savings. Chinese authorities acknowledge the need to boost consumption, having recognized it as a national important objective since the XII Five-Year Plan (2011-2015). Recognizing a problem and acting on it are two different matters.
Excessive corporate savings intended for low-return investments and household savings invested uncontrolled in the real estate sector create financial problems, as local government financial vehicles and Chinese real estate companies’ observers have noted. However, China has the financial capacity to address these issues. It remains sufficiently financially isolated that these problems are unlikely to spread worldwide.
Why Worry About China’s Trade Surplus?
Its uneven impact across countries and regions, as learned from the first “China Shock,” the export boom preceding the global financial crisis, threatens populist backlash against globalization and multilateralism. These effects are even more pernicious now than a generation ago, as the U.S. market is increasingly closed to China, and other regions, starting with Europe, will bear the brunt of Chinese exports.
Existing threats to multilateralism, such as the U.S.-China geostrategic rivalry and U.S.-Europe tensions, will only worsen with this reaction.
Solutions at Home
The U.S. can tackle public sector dissaving by raising taxes and closing fiscal loopholes. It can tighten financial regulations encouraging tech companies to misspend money. China can stimulate consumption by strengthening its social safety net, freeing preventive savings.
Author Bio
Barry Eichengreen
Barry Eichengreen is a professor of Economics and Political Science at the University of California, Berkeley. He is the author of the upcoming book Money Beyond Borders: Global Currencies From Croesus to Crypto (Princeton University Press, March 2026).
Copyright: Project Syndicate, 1995 – 2026
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