Barry Eichengreen: Global imbalances are under G-7 discussion but a fixation with China’s surplus won’t fix them

Economically, the case remains to be made. To be sure, US and Chinese imbalances are large. The International Monetary Fund (IMF) puts America’s current-account deficit for 2025 at around 4.6% of GDP, down slightly from its 2006 peak of 6.2%. China’s surplus is down to 3.3% of GDP from 10% in 2006.

But China’s share of global GDP has tripled since then (at current prices, which are what matter for internationally traded goods). Multiply China’s surplus by three, as is appropriate for gauging its impact on the world economy, and you get the 2006 surplus ratio.

So, if we focus on the two economies that together account for 40% of global economic output, imbalances are nearly as large as they were in 2006, when they anticipated the global financial crisis two years later.

But reckless risk-taking, inadequate transparency and lax financial regulation, not global imbalances, lay at the root of that crisis. Today, risks to financial stability abound once again—in private credit, crypto, circular financial flows related to data-centre and semiconductor investments, and looser bank supervision in the US.

And yet these risks are neither causes nor consequences of global imbalances. In private credit, the problem is again a lack of transparency. In crypto, it is inadequate regulation. In bank supervision, it is ideology and the power of the banking lobby.

Only when it comes to investment in data centres and chips can one draw a link between global imbalances and risks to economic and financial stability. Such investment was responsible for fully 80% of the increase in US final private domestic demand in the first half of 2025.

The US current-account deficit is the excess of investment over saving. So, if investment were less, the US current-account deficit would be less, other things being equal. Of course, US growth would also be less, which would not be positive for either America or the rest of the world. Be careful what you wish for.

This situation is also a reminder of the Lawson Doctrine, named after Nigel Lawson, the second chancellor of the exchequer under British Prime Minister Margaret Thatcher. Lawson held that current-account deficits are benign if they reflect high investment rather than low saving. We learnt subsequently that investment-driven deficits are benign only if investments are productive.

Fast-forward to today’s doubts about the returns on investments in AI, specifically in energy-hungry data centres using chips that burn out or become obsolete after two or three years. Seeing technology companies use special-purpose vehicles of finance to borrow, slice and dice the resulting obligations, and sell them to institutional investors will trouble those whose memories stretch back 20 years.

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The solutions lie at home. The US can address public-sector dissaving by raising taxes and closing tax loopholes. It can tighten financial regulations that encourage tech companies to throw good money after bad. On its part, China can stimulate consumption by strengthening its social safety net, which would free up precautionary savings.

The IMF has sent these messages. The question is whether they will be received. As Shakespeare put it, “The fault, dear Brutus, is not in our stars, but in ourselves." ©2025/Project Syndicate

The author is professor of economics and political science at the University of California, Berkeley, and the author of the forthcoming ‘Money Beyond Borders: Global Currencies From Croesus to Crypto’.