More Balance In Global Trade Indicates Recovering Global Economy

Wednesday, November 28, 2012 22:22
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More Balance In Global Trade Indicates Recovering Global Economy

Tags: China | deficit | world economy

It turns out that perhaps there was another contributor to the 2008 financial crisis: the global trade imbalance.
 
So-called current account imbalances between countries began to build long before the 2008 crisis.

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There became a surplus of exporters, such as China and Germany, and importers like the US saw their deficits skyrocket.
 
Treasury Secretary Timothy Geithner met with global finance ministers in October of 2010 to push each Group of 20 nation to limit its surplus or deficit to 4% of gross domestic product (GDP).
 
Of course, the exporters would not agree. Ironically, just two years later, the 4% limits are being met by China and the US.
 
This means the global economy is recovering even as some countries experience recession and less than optimal growth.
 
The US current-account deficit, which measures trade balances, will be 3.1% in 2013. That’s down from 6% in 2006.
 
The surplus in China will be 2.5%, down from 10.1% in 2007. The International Monetary Fund predicts the two nations will manage to maintain the 4% limit through 2016.
 
Perhaps there may new drivers of growth for the global economy. The US is shifting toward manufacturing and China is veering toward domestic consumption.
 
Cheaper energy and lower wages are giving the US an advantage over rivals in Europe and Japan.
 
Even so, China’s portion of global GDP will continue to rise as its economy grows from increased domestic consumption.
 
This may mean that G20 nations will still need to reach an agreement for the global economic balance to become sustainable.

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