The writer, a professor of economics at London Business School, chairs the G7 expert group on Global Imbalances.
For almost two decades, global imbalances were small enough to ignore. That reprieve is over. In 2025 the US ran a current account deficit of 3.6 per cent of GDP, and China’s surplus climbed back above 3 per cent of output, propelled by a goods trade surplus approaching $1.2tn. The euro area remains in persistent surplus, and America’s net liabilities to the rest of the world have reached an extraordinary 90 per cent of GDP. These are numbers that history teaches us to respect, and the G7 has rightly taken notice. President Emmanuel Macron has placed the restoration of balanced and sustainable growth at the heart of France’s G7 presidency; my colleagues and I have set out the diagnosis and the cure in a memo.
An imbalance is not, at root, a trade phenomenon; it results from the dynamics of saving and investment. A country that saves more than it invests lends abroad and runs a current account surplus; one that invests more than it saves borrows and runs a current account deficit. It is the collective saving and investment decisions of a country’s households, companies and government that drive imbalances.