their thumbs as if awaiting a financial crisis to force action. ENTRENCHED DIVERGENCES President Donald Trump’s Big (not so) Beautiful Bill, passed on 4 July 2025, aggravated America’s deficits. His forthcoming tariff refunds and increased defence spending could exacerbate the red ink. Meanwhile, the administration offers the public a ‘voodoo economics’ tale, suggesting that surging growth and productivity will cut the budget deficit to 3% of GDP, thus countering global imbalances. Even if the executive branch wants to slash US fiscal deficits, no administration can make credible fiscal commitments without Congress. Trump’s thinking that tariffs would bring down US trade deficits was misguided from the start. An independent central bank – the Federal Reserve – makes monetary policy. China’s surpluses are also locked in. The economy faces deflation or low inflation, a housing collapse, excess leverage, low confidence and depressed domestic demand, among other challenges. Meanwhile, the state-owned banking system funnels finance to state-owned enterprises, which maintain production that cannot be absorbed domestically. That spawns manufacturing exports, underpinning a massive current account surplus of 3% to 5% of GDP, aided by a highly undervalued currency. Chinese and other economists consistently urge the government to increase fiscal support for consumption, services and the social safety net in lieu of investment and to deploy more aggressive monetary policy accommodation. Yet the leadership has deliberately avoided doing so, fearing such policies could unleash other woes. China needs a continued weak currency – the renminbi – to sustain
strong exports, offset its weak domestic demand and meet its growth targets. Europe’s surpluses will remain in place, even if reduced. They have reflected, in large part, Germany’s strong savings. Germany’s decision to boost defence and infrastructure spending and reform its debt brake could help lower its current account surpluses in the years ahead. So could its higher energy bills. But European exports may be swamped by China’s external prowess. And one should not expect Europe to make major strides in bolstering its competitiveness. DIAGNOSIS WITHOUT DELIVERY: THE LIMITS OF G7 ACTION Given the G7 focus on global imbalances, lower-level official study groups will crank out wonderful papers and scenarios, aided by talented analysts at the International Monetary Fund. Even if the leaders’ discussions of the global economy at Évian simply entail describing developments in individual economies, at least that can make them more mindful of the situation faced by others. However, Macron’s ambitions to secure concrete commitments to tackle imbalances will likely meet disappointment from cold reality. France is a middle power, unable to pin down the United States and China, let alone Germany, on concrete commitments. China, the world’s second largest economy, is not a G7 member. Given the realities of nation-states, G7 leaders are unwilling to subordinate domestic objectives to external disciplines. Getting domestic houses in order is the real key to fostering a strengthened world economy and that does not appear to be in the cards. Global imbalances are not going away.
T he G7’s Évian Summit will face no dearth of hot topics – the Middle East, trade, energy, Russia’s war against Ukraine, China’s growing global influence and the future of multilateralism. Plus, will Trump be on his good behaviour? G7 summits began in 1975 against the backdrop of the collapse of the Bretton Woods system of fixed exchange rates and the oil crisis created by the Organization of the Petroleum Exporting Countries. Today, the need for G7 global economic governance remains every bit as valid. French president Emmanuel Macron, this year’s G7 chair, has proposed a focus on global imbalances – the persistence of large US current account deficits and massive Chinese and European surpluses. Discussed for some two decades to little avail, global imbalances nonetheless constitute a useful framing for G7 leaders’ discussion on the world economy. Macron recently observed – correctly – that excessive imbalances arise from American overconsumption, Chinese underconsumption and overinvestment, and European underinvestment and lack of competitiveness. That assessment was also valid 20 years ago. Yet American dissaving will remain well entrenched in the years ahead. The flipside of US overconsumption is low national saving, significantly associated with the US government’s longstanding huge fiscal deficits. Estimates now point to unsustainable average yearly deficits of 6% of gross domestic product over the next decade. America’s political class lacks the will to tackle them, twiddling Mark Sobel, US chair, Official Monetary and Financial Institutions Forum
With growth slowing and families struggling to make ends meet, it is an appalling injustice when money ends up in the hands of criminals – money that could be spent on much-needed global growth and development” // MARK SOBEL Mark Sobel is US chair at the Official Monetary and Financial Institutions Forum. He represented the United States on the International Monetary Fund executive board between 2015 and 2018, and was deputy as- sistant secretary for international monetary and financial policy at the US Treasury between 2000 and 2015. He helped lead Treasury preparations for meetings of G7 and G20 finance ministers and central bank governors, formulated US positions at the IMF, and coordinated Treasury and regulatory agencies’ work in the Financial Stability Board. He played a key role in US foreign exchange policy, including coordinating the Treasury’s semi-annual foreign exchange report on China and other countries.
X-TWITTER @sobel_mark omfif.org
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