The Global Trade Order Is Heading for a Reckoning

For decades the world economy has run on an arrangement that is now coming apart: China, Germany and a handful of other export-heavy economies run enormous, persistent trade surpluses, while the United States absorbs them by running the world's largest deficit. Michael Pettis argues in Foreign Affairs that this was never a stable equilibrium — for a capital-rich economy like America, an enduring deficit eventually forces a choice between rising unemployment or rising debt, and Washington has spent the Trump years choosing debt. The imbalance is now colliding with a political mood in which surplus countries no longer want to keep financing it, and deficit countries no longer want to keep absorbing it. Pettis's deeper point is that the major blocs cannot even agree on a diagnosis: Beijing blames excessive American consumption and fiscal profligacy, Washington blames foreign industrial and currency policy, and Europe has not settled on a story at all. Because the disagreement is about causes rather than symptoms, the remedies each side proposes actively contradict one another instead of converging on a fix. That, Pettis warns, is what makes a rebalancing likely to arrive as a shock rather than a negotiated adjustment — through a debt crisis, a currency snap or a supply shock, not through diplomacy. The essay lands as bond markets are already repricing US and European debt and Washington escalates tariff fights with Canada and others, suggesting the rebalancing may already be underway. For a piece framed around the last six months, it reads more like a preview of the next two years.