Global Imbalances Are Back. Who’s to Blame in multipolar World ?

In the years before Lehman Brothers collapsed and took the global financial system with it, macroeconomists were consumed by a singular anxiety. It was not, as hindsight now screams, the fragility of over-leveraged American banks or the toxic alchemy of subprime mortgage securitisation. It was something altogether more exotic: the “global saving glut.” According to this then-prevailing wisdom, Asia’s almost pathological determination to accumulate dollar reserves—a form of financial self-insurance after the trauma of the 1997 crisis—was depressing global interest rates, tempting Americans into a catastrophic binge of borrowing and spending. Asia earned more than it spent; America spent more than it earned. The world tipped, and eventually, it broke.

Fast forward to April 2026, and the ghost of that pre-crisis anxiety is once again rattling its chains in the halls of the IMF and the trading floors of global capital. The language has been updated, but the underlying fault line is depressingly familiar: global imbalances are back. Yet to simply dust off the 2008-era script and point the finger of blame exclusively at Asian thrift or American profligacy would be to miss the point entirely—and dangerously so. The 2026 vintage of this old problem is larger, more stubborn, and rooted in a set of political and structural choices that have mutated in a world now defined by fracturing trade, AI-driven investment booms, and the hollowing out of multilateralism. The old fixes won’t work. To understand who is really to blame, we must look beyond the comforting simplicity of the “saving glut” myth and into the hard arithmetic of today’s domestic policy failures.

The Numbers Don’t Lie: Imbalances Redux

Let’s start with the cold, hard data, because the scale of the reversal is breathtaking. For much of the 2010s, the world quietly congratulated itself on a gradual, if imperfect, rebalancing. The massive pre-2008 chasm between surplus and deficit nations had narrowed. Then came the pandemic, a cascade of fiscal bazookas, and a return to a world where macroeconomic divergence is not just a feature but the central organising principle.

According to the IMF’s latest 2025 External Sector Report, global current account balances widened by a significant 0.6 percentage points of world GDP in 2024, the largest such increase in a decade and a stark reversal of the post-Global Financial Crisis trend. More worryingly, the IMF estimates that about two-thirds of this widening is “excessive”—that is, not justified by economic fundamentals like demographics or stage of development. The widening is not a broad-based, diffuse phenomenon; it is concentrated, with the culprits being the usual, massive suspects. The United States, China, and the euro area together account for the lion’s share of this global wobble.

The individual country data for 2025 is even starker. China’s current account surplus surged to a record-shattering $735 billion, equivalent to 3.8% of its GDP, driven by a staggering $1.2 trillion surplus in the trade of goods alone. This isn’t just a surplus; it’s an export tsunami. Meanwhile, the mirror image in the United States shows a current account deficit of $1.12 trillion for the full year, representing 3.6% of GDP. The US trade deficit in goods hit a record $1.24 trillion in 2025. The euro area, while a smaller actor in this drama, runs a persistent surplus of its own, which clocked in at €276 billion (1.7% of GDP) in 2025.

The superficial symmetry—a deficit here, a surplus there—is what gave rise to the old “saving glut” narrative. But a deeper look at the composition of these imbalances reveals a far more nuanced, and politically inconvenient, story. This is not a story of passive macroeconomic forces; it is a story of deliberate political and structural choices.

Suspect #1: America’s Fiscal Party

The old saving-glut hypothesis placed the onus on Asia’s high savings. But in the 2020s, the far more proximate and powerful driver of the US current account deficit is the yawning chasm in America’s own public finances. A nation’s current account balance is, by definition, the difference between its national saving and its national investment. And in the United States, national saving has been decimated by a federal government that has seemingly abandoned all pretense of fiscal restraint.

The federal budget deficit for fiscal year 2025 stood at $1.8 trillion, or roughly 6% of GDP. And the outlook is not for improvement; JPMorgan projects the deficit to widen to 6.7% of GDP in 2026. The Congressional Budget Office paints a similarly bleak picture, estimating deficits will remain near $2 trillion annually, pushing federal debt held by the public to around 120% of GDP within a decade. This is not the result of some unavoidable economic calamity. It is a political choice, born of a bipartisan consensus that it is easier to cut taxes and expand spending than to ask any constituency to bear a burden.

The fiscal largesse, turbocharged by the post-pandemic stimulus and sustained by a booming, AI-fueled stock market and robust consumer spending, has kept US domestic demand running red hot while the rest of the world’s appetite has been more subdued. As the IMF has repeatedly noted, the growing US trade deficit is largely driven by these domestic macroeconomic imbalances. America is spending far beyond its means at the federal and household levels, and the world’s surplus nations, chief among them China, are more than happy to finance that gap by shipping goods and recycling their earnings back into US assets. To pin the blame for this deficit on the thriftiness of a Chinese factory worker is a convenient evasion. The primary culprit for America’s external deficit is America’s own internal fiscal indiscipline. We have met the enemy, and it is us.

Suspect #2: China’s Export Machine on Steroids

If America’s problem is overconsumption, China’s is chronic underconsumption and overproduction. The narrative from Beijing often frames its record trade surplus as a testament to the superior competitiveness and innovation of its manufacturing sector. There is some truth to that—Chinese firms have become astonishingly efficient in industries from electric vehicles to solar panels. But the sheer scale of the surplus—$1.2 trillion—is not merely a sign of strength. It is a symptom of profound domestic economic weakness.

The property bust, which has seen real estate investment plummet by 17.2% in 2025 and new home prices drop 12.6%, has eviscerated a crucial pillar of household wealth and local government finance. Precautionary savings among Chinese households remain stubbornly high, a rational response to an inadequate social safety net and deep uncertainty about the future. Consumption as a share of China’s GDP remains below 40%, compared to a global average of nearly 57%. As a result, the country’s industrial capacity, built for a world that no longer exists, must find an outlet. Exports have become the primary escape valve for excess production, defying even the US’s 100% tariffs on Chinese EVs and the broader protectionist tide, rising 5.5% year-on-year to $3.77 trillion in 2025.

This is a structural imbalance. Beijing has responded with targeted stimulus and a push for “new quality productive forces,” but the underlying model remains tilted toward investment and exports over consumption. As the Bank of Finland’s BOFIT analysis notes, China’s import trends are sluggish, correlating directly with weak domestic demand. The record surplus, therefore, is not just an export success story; it’s the flip side of a domestic economy that cannot generate enough demand to absorb its own staggering output. And in a world where growth is scarce, China’s solution—exporting its deflationary pressures and excess capacity—is being met with a predictable backlash of tariffs and industrial policy from its trading partners.

Europe’s Quiet Role and the Missing Investment Boom

Europe often fades into the background of the great Sino-American economic drama, but it is far from a neutral bystander. The euro area runs a significant current account surplus of around 1.7% of GDP. For years, this surplus was driven by Germany’s formidable export machine, but the narrative in 2026 is more complex.

Europe’s surplus is less a story of aggressive export drive and more a story of an investment drought. For all the talk of a green transition and digital sovereignty, private and public investment in the euro area remains chronically subdued. The region’s structural problem is not that it saves too much, but that it invests too little within its own borders. The surplus is a capital export, a sign that the continent’s most productive use for its savings is not at home but abroad, particularly in the high-yielding, AI-driven US market.

The IMF’s assessment is clear: the correct remedy for Europe’s external position is to “spend more on public infrastructure to close the productivity gap” and boost investment. There are some positive signs—the European Central Bank noted that firms increased investment, particularly in digital technologies, in 2025. However, the overall picture remains one of a region that is a net saver in a world starved of productive, long-term capital. Europe’s quiet role in the global imbalance saga is not one of villainy, but of missed opportunity and a chronic failure to unlock its own growth potential.

Why the Old Fixes Won’t Work Anymore

If the diagnosis of 2008 was a “global saving glut,” the prescription was theoretically simple: deficit countries (the US) should save more, and surplus countries (China, Germany) should spend more. In the rarefied air of economic models, this rebalancing is neat and tidy. In the messy, fragmented world of 2026, it is a fantasy.

The first reason is tariffs. President Trump’s aggressive use of tariffs has been met with a torrent of retaliation and has fundamentally reshaped global trade flows. While the US current account deficit did narrow to 3.6% of GDP in 2025 from 4.0% the previous year, this was not a triumph of policy. It was largely a mechanical effect of a government shutdown and a temporary pull-forward of imports ahead of tariff hikes, followed by a subsequent collapse in imports. Tariffs, as the IMF has unequivocally stated, are not a cure for global imbalances; they are a destructive symptom of the underlying disease, diverting trade rather than addressing the fundamental savings-investment misalignments.

Second, geopolitics and supply chain resilience are now trumping pure economic efficiency. The push for “friend-shoring” and domestic production in strategic sectors like semiconductors and clean energy means that trade flows are no longer determined solely by comparative advantage. Governments are actively intervening to create surpluses in targeted industries and reduce dependencies, even if it means higher costs for consumers and a less efficient global allocation of capital. The world is moving toward a patchwork of industrial policies, each trying to tilt the playing field in its favor.

Third, AI and the “investment boom” have introduced a new and powerful force. The United States is in the midst of a massive, AI-driven investment cycle, which is a significant factor behind its robust domestic demand and its attraction of global capital. This investment boom is a magnet for foreign savings, helping to finance the US current account deficit. It is a virtuous cycle for the US, but it also exacerbates global imbalances by pulling capital away from other regions, particularly Europe, which is struggling to keep pace. The very nature of the economic shock—an investment-led boom in one part of the world—makes the old policy prescriptions of simple fiscal austerity and demand stimulus seem crude and ill-suited.

A Realistic Path Forward – What Policymakers Must Do

So, in this new, more complex world, what is to be done? The glib answer—”coordinate globally”—is as true as it is useless. The multilateral machinery that could facilitate such coordination is in tatters. The path forward, therefore, must be a realistic one, built on what each of the major players can and should do unilaterally, in their own self-interest, even if they cannot all hold hands and sing from the same hymn sheet.

For the United States, the most pressing task is to put its fiscal house in order. This is not about draconian austerity that tips the economy into recession. It is about a credible, long-term plan to stabilize and then reduce the debt-to-GDP ratio. This would have the twin benefits of reducing the government’s drain on national saving and restoring confidence in the long-term health of the US economy. The political system has proven itself incapable of this task for decades, but the stakes are rising. As JPMorgan’s David Kelly has warned, the US is “going broke slowly,” but a crisis of confidence in the US Treasury market would be anything but slow.

For China, the priority must be to rebalance its economy toward domestic consumption. The old playbook—more fiscal stimulus for infrastructure and manufacturing—is not only reaching its limits but is actively worsening the global oversupply problem. The government has made rhetorical commitments to “common prosperity” and a stronger social safety net, but the action so far has been underwhelming. Reforms that boost household incomes, reduce the need for precautionary savings (through better healthcare and pension systems), and allow the property market to find a true bottom are essential. A China that consumes more is a China that imports more, and that would be a powerful engine for global demand and a crucial step in reducing its own politically destabilising surplus.

For Europe, the imperative is to unleash investment. The Draghi report on European competitiveness laid out the scale of the challenge, and the EU has pledged to mobilize hundreds of billions of euros for green and digital projects. But the key is execution. Overcoming the inertia of national fiscal rules and the fragmentation of capital markets is a political challenge of the first order. A Europe that invests more at home will not only boost its own flagging productivity and growth but will also reduce its need to export its savings to the rest of the world.

Finally, there is a collective responsibility to resist the siren song of protectionism. Tariffs are the economic equivalent of medieval bloodletting: they might make you feel like you’re doing something, but they only weaken the patient. A return to a more stable, rules-based trading system, even if it is imperfect and must be modernized for the 21st century, is in the vital interest of all major economies.

The global imbalances of 2026 are a shared problem with a shared cause: a failure of domestic policy in the world’s largest economies. The old story of the “global saving glut” was a convenient fable that let everyone off the hook. The new reality is harsher and more demanding. It requires each of the major economic blocs to confront the hard choices they have been studiously avoiding. The tipping global scales are not the result of some impersonal force of nature. They are the direct consequence of political choices made in Washington, Beijing, Brussels, and Berlin. The blame is shared. And so, too, must be the responsibility for fixing it before the next, inevitable crisis arrives.