A Balanced Look at Sino-American Imbalances
In the long run, America’s growth pattern must undergo a structural shift from reliance on debt and consumption to an economy driven by America’s ability to innovate and create. But in the short run, the US current-account deficit will remain, regardless of which country runs bilateral surpluses.
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BEIJING – Before July 2007, most economists agreed that global imbalances were the most important threat to global growth. It was argued that the United States’ rising net foreign debt-to-GDP ratio – the result of chronic current-account deficits – would put a sharp brake on capital inflows, in turn weakening the dollar, driving up interest rates, and plunging the US economy into crisis.