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EconoFact: “Are Global Imbalances a Source of Concern?”

Summary:
That’s the title of a new EconoFact piece. Here is the key depiction of some key current account balances, past and (possibly) future. From the article: The distribution of current account balances is important in the current political context. Persistent current account surpluses from countries such as Germany, China, and Korea in the face of a persistent and increasing current account deficit in the United States contribute to increasing political tensions over trade policies. To the extent that deficit countries could raise production and employment by shifting spending away from exports from surplus countries, policymakers might be tempted to use trade policies to narrow the gap. But, imposing tariffs and other trade restrictions, without addressing other factors such as the balance

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That’s the title of a new EconoFact piece. Here is the key depiction of some key current account balances, past and (possibly) future.


From the article:

The distribution of current account balances is important in the current political context. Persistent current account surpluses from countries such as Germany, China, and Korea in the face of a persistent and increasing current account deficit in the United States contribute to increasing political tensions over trade policies. To the extent that deficit countries could raise production and employment by shifting spending away from exports from surplus countries, policymakers might be tempted to use trade policies to narrow the gap. But, imposing tariffs and other trade restrictions, without addressing other factors such as the balance of government spending, is not likely to have a significant effect on the U.S.’s current account.

On the other hand, the Administration and Congress’s plans to blow up the deficit by something like $2.2 trillion over ten years is likely to exacerbate US current account deficits, according to my estimates.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

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