Global trade imbalances got bigger in 2024, driven by the big economies. Here’s a figure from the External Sector Report: Global Imbalances in a Shifting World, from the IMF (July 2025). The horizontal axis shows trade balances in 2023. Looking at the horizontal axis, the US has by far the largest trade deficit in 2023, while China and the “EA,” or euro area, have the biggest surpluses. Looking a little more closely, you can see that the DEU point for Germany is quite similar on the horizontal axis to EA, showing that most of the euro area trade surplus in 2023 was due to Germany alone.
The vertical axis shows the change in the trade deficit from 2023 to 2024. As you can see, the US started with the biggest trade deficit in 2023, and also experienced the biggest fall in its trade deficit in 2024. Conversely, China and the euro area started with the biggest trade surpluses in 2023, and also experienced by far the biggest rise in trade surpluses in 2024. Looking more closely, Germany’s trade surplus (the DEU point) didn’t rise much in 2024, so most of the 2024 increase in the euro area trade surplus must be traceable to other countries.
Tariffs and trade barriers cannot reasonably be the source of the changes in 2024, becusae they did not, in general, shift in any dramatic way in 2024. So what are the primary factors behind these changes?
The IMF report breaks it down this way. For the US economy, there were two main reasons why its trade imbalance worsened in 2024. One was. perhaps unexpectedly to the uninitiated in economics, that US investment levels went up. But if foreign investors are putting money into US investments, they are not purchasing US exports. The other reason is a decline in US public saving–that is, more government borrowing. Again, if foreign investors are buying US Treasury bonds, they are not using those funds to purchase US exports.
Conversely, in China and the euro area, the main factor driving the higher trade surpluses was a combination of weak economies and a declining level of investment. As the IMF writes:
Changes in investment rates uniformly contributed to widening saving-investment gaps, with an increased investment rate in the United States widening the current account deficit, and a decrease in key surplus regions (China, the euro area, and Japan) expanding the surpluses. These changes in investment partly reflect divergent domestic demand conditions in 2024 relative to 2023: continuing real estate correction and weaker demand in China, deteriorating conditions in the euro area, and strong growth in the United States.
The economic connections here may be unexpected to those uninitiated in economics, so let me spell them out a little. Imagine that the US economy is growing faster than the economies of other countries. In turn, this means that demand for goods and services is growing faster in the US economy than in other countries. As a result, it will be easier for foreign producers to sell into the faster-growing US market than it will for US producers to sell into the slower-growing foreign markets. Thus, at least in the medium run of a few years (and leaving out factors like interest rate or exchange rate adjustments), a relatively fast-growing US economy will tend to have bigger trade deficits (more growth in imports than in exports).
Indeed, this dynamic is one reason why large US government budget deficits tend to lead to larger trade deficits. The larger budget deficits stimulate demand in the US economy–which includes demand for imports as well as domestically-produced goods.
When it comes to investment, the Trump administration regularly announces with some fanfare that firms or investors in countries have agreed to make investments in the US economy. But where do the foreign parties get the US dollars to make those investments in the US? Of course, it’s from selling imports to the US, and not buying an equivalent number of exports. In this way, the Trump administration goal of high and rising foreign investment in the US economy can only work if other countries have a trade surplus with the US economy.
The IMF report also points out that the global economy is shifting toward more restrictions on trade, along with greater use of subsidies for domestic industries. Here’s a count of the number of these provisions. Of course, international trade is based on the idea of buying goods and services with the preferred combination of price and quality from anywhere in the world. Hindering or blocking trade, and replacing it with government subsidies, is based on the idea that firms will experience higher gains in output if they compete for government subsidies rather than for global and domestic market share.
Ultimately, trade imbalances are about big macroeconomic factors, not tariffs or “fairness.” Thus, to address the imbalances, the IMF points to macroeconomic changes:
- Economies with stronger than warranted external positions should focus on policies that promote investment and limit excess saving. In China, expansionary fiscal policy, to support consumption by scaling up social spending, and market-oriented structural reforms, including a scale-back of industrial policies, would help reduce excess saving. Structural policies that promote investment, for example by improving the business environment, liberalizing the FDI regime (India) and easing regulatory hurdles (Poland) can help external rebalancing. In some cases, expansionary fiscal policy is needed to invest in transportation and energy (Germany), and to spend on health care and human capital (Singapore). Improving social safety nets where needed would promote private consumption and help decrease the need for excess saving.
- Economies with weaker than warranted external positions should focus on policies that boost saving and competitiveness. In the United States, fiscal consolidation, that together with growth-enhancing easing of regulatory burden puts the debt-to-GDP ratio on a downward path, would increase public saving, supporting rebalancing.
