France’s G-7 Agenda and the Return of ‘Global Imbalances’: Old Problem, Wrong Diagnosis?

On January 1, France assumed the presidency of the G-7, the long-standing forum of advanced economies. Paris has placed “global imbalances” at the centre of the group’s agenda—specifically, the large current-account surpluses and deficits of countries such as China and the United States. The theme evokes memories of 2006, when similar anxieties dominated global economic discussions, just before the global financial crisis erupted two years later.

Politically, the choice is understandable. If US President Donald Trump and European leaders can still agree on anything, it is that China’s trade surpluses pose a challenge. For President Emmanuel Macron, the agenda also serves a domestic purpose—deflecting attention from France’s own fiscal difficulties while projecting leadership on the world stage. Economically, however, whether global imbalances deserve this renewed prominence is far less clear.

Are global imbalances really back?

By headline numbers, today’s imbalances appear smaller than those of the mid-2000s. The International Monetary Fund estimates the US current-account deficit at about 4.6% of GDP in 2025, below its 2006 peak of 6.2%. China’s surplus, meanwhile, has fallen to around 3.3% of GDP, compared to nearly 10% in 2006.

But these ratios alone are misleading. China’s share of global GDP has tripled since 2006 at current prices—the metric that matters for traded goods. Adjusting for scale, China’s surplus today has an impact on the world economy comparable to that of 2006. Since the US and China together account for roughly 40% of global output, the combined imbalance between them is not far from pre-crisis levels.

Lessons from 2008: imbalances were not the real culprit

Yet history cautions against drawing a straight line from imbalances to crisis. The global financial crisis was not caused by current-account deficits and surpluses, but by reckless risk-taking, opaque financial instruments and lax regulation—especially in advanced economies.

Fast forward to today, and risks to financial stability are again visible: the rapid growth of private credit markets, inadequate oversight of crypto assets, complex and circular financial flows linked to data centres and semiconductor investments, and a loosening of bank supervision in the US. These dangers echo the past, but they are largely independent of global imbalances.

Where imbalances and financial risk intersect

One area does link imbalances to instability: the surge in US investment in data centres and advanced chips. Such investment accounted for nearly 80% of the increase in US final private domestic demand in the first half of 2025. Since the US current-account deficit reflects the excess of investment over saving, this investment boom has mechanically widened the deficit.

Reducing investment would shrink the deficit—but at the cost of slower US growth, which would harm both the American economy and the rest of the world. This underlines the danger of treating imbalances as a problem to be “corrected” without regard to their underlying drivers.

The Lawson Doctrine revisited

This debate recalls the Lawson Doctrine, named after Nigel Lawson, who argued that current-account deficits are benign if they reflect strong investment rather than weak saving. Subsequent experience added a crucial caveat: investment-driven deficits are safe only if the investments are productive.

That caveat looms large today. Doubts are growing about the long-term returns from massive investments in artificial intelligence, particularly energy-intensive data centres reliant on chips that can burn out or become obsolete within a few years. The use of special-purpose vehicles to package and sell these risks to institutional investors is uncomfortably reminiscent of financial engineering before 2008.

China’s surplus: not too little investment, but too much saving

China’s situation is different. The issue there is not inadequate investment, but excessive saving. Chinese officials have acknowledged the need to boost consumption for over 15 years, making it a central goal as early as the 12th Five-Year Plan (2011–15). Progress, however, has been limited.

High corporate savings funnelled into low-return projects and household savings concentrated in real estate have generated well-known stresses, particularly in local government financing vehicles and property developers. Yet China retains substantial fiscal and financial capacity to manage these problems. Its relatively closed financial system also limits the risk of global contagion.

Why China’s surplus still matters

If China’s internal challenges are containable, why worry about its trade surplus? The answer lies in its uneven impact. The first “China shock” showed how concentrated export surges can devastate specific regions and industries, fuelling populist backlash against globalisation.

This risk is arguably greater today. As the US market becomes less accessible to Chinese exports, the pressure will fall more heavily on Europe and other regions. The resulting tensions will compound existing strains on multilateralism arising from US–China rivalry and transatlantic frictions.

The solutions lie at home, not abroad

Addressing global imbalances ultimately requires domestic action. The US can reduce public-sector dissaving by raising taxes and closing loopholes, while tightening financial regulations that encourage speculative overinvestment in technology. China, for its part, can stimulate consumption by strengthening its social safety net, reducing the need for precautionary household savings.

These prescriptions are hardly new. The IMF has long articulated them. The challenge, as ever, is political will. As Shakespeare observed, “The fault, dear Brutus, is not in our stars, but in ourselves.”