Global trade imbalances return to policy agenda, reviving protectionism and crisis concerns

Global current account imbalances are moving back to the centre of economic debate, renewing concerns that persistent surpluses and deficits can fuel protectionist politics and increase financial stability risks.

Economists have long argued that large, sustained imbalances can become politically destabilising and, in some circumstances, serve as an early warning sign for financial crises.

Familiar surplus and deficit countries The main surplus economies are again China, European creditor countries, Japan and oil producers. The United States remains the principal deficit country and a key global borrower.

China’s surplus, relative to the size of the world economy, is described as comparable to 2008 levels. However, it represents a smaller share of China’s own GDP than it did then, reflecting China’s growth since that period.

US liabilities and the role of government borrowing A key change from 2008 is the rise in net US external liabilities. These reached 24% of global output in 2024, up from 6% in 2008.

The analysis also argues that the US private sector has moved into balance, leaving government borrowing as the main domestic counterpart to the external deficit.

Risks: financial strains and political backlash The article highlights concerns that any future financial crisis could be triggered in the US, given the scale of external liabilities and expectations that they may rise further.

It points to concentrated exposures among asset managers, stretched equity valuations and signs of investor nervousness, including increased hedging activity.

Protectionism is presented as a direct consequence of these imbalances, particularly in US trade policy. Persistent high savings in surplus economies such as China mean those savings must be absorbed abroad, linking trade tensions, cross-border capital flows and financial stability risks.