WIREDGOV

EXPERT COMMENT

The current focus on ‘global imbalances’ is too easily used by policymakers as a smokescreen for their own domestic failings.

Global imbalances are back on the international finance agenda this year, prompting a flagship G7 report and creating discord at the G20 finance minsters’ summit. 

Seemingly this focus on global imbalances is justified. China’s trade in goods surplus now alarms Europe’s leaders as much as it worries America’s. The US’s net liability to the world – the degree to which its overseas borrowing exceeds its overseas investments – reached an astonishing 70 per cent of US GDP in 2025. The last time global imbalances were this prominent was just ahead of 2008’s Global Financial Crisis.

What a shame, then, that this focus is so misguided. Imbalances are a feature of the global financial system, not a bug. They arise from saving and investment decisions, allowing diversification and dispersing risk in the process. In truth, ‘global imbalances’ are not primarily a global phenomenon. They are simply the product of all the world’s domestic imbalances added up. 

And because foreign investment is more mobile than domestic investment, it is more likely to punish bad domestic policymaking by moving elsewhere. The result is to impose discipline – constraints – on political choices.

There is a generous interpretation of the motives for the current focus on global imbalances. It is possible that simultaneous domestic reforms across the global economy would make fixing economic issues at home easier for everyone.

But the tone and outcomes at the G20 minsters’ summit invite a less generous conclusion; that some governments are attempting to dress up their domestic policy failings as the result of foreign actions.

Click here to continue reading the full version of this Expert Comment on the Chatham House website.