Dr Yim-fai Luk

15 July 2026

Around 20 years ago, current-account imbalances were an important issue in the global economy. The current account comprises imports and exports of goods and services, as well as the difference in returns on cross-border investment, with the former being the main component. Current-account imbalances can be regarded as trade imbalances: the persistence, or even growth, of trade surpluses or deficits in many economies as a proportion of GDP.

It is entirely normal for individual economies to run trade surpluses or deficits. However, if this becomes a widespread phenomenon and turns increasingly serious, it naturally warrants concern. We can measure the degree of global current-account imbalance by taking the sum of the absolute values of individual economies’ current account surpluses and deficits as a proportion of GDP worldwide. According to data from the International Monetary Fund (IMF), this proportion was approximately 2% to 3% from the 1970s to 1990s, but it rose rapidly from the late 1990s onwards, reaching a historical peak of 5.5% in 2006. Around the time he took office as chair of the US Federal Reserve in 2006, Ben Bernanke advanced the idea of a “saving glut” in several speeches and writings. The basic argument was that savings in Asian and oil-exporting economies were abundant and exceeded what their local financial markets could effectively absorb, so capital flowed to the US and other countries with more mature financial systems. Since the current account and the capital account must sum to zero, capital inflows gave the US a surplus in its capital account and a deficit in its current account, while the opposite was true of Asian and oil-exporting economies.

After the Second World War, the rapid growth of East Asian and Southeast Asian economies attracted considerable foreign capital. However, the 1997–98 Asian financial crisis reversed these capital flows. After experiencing exchange-rate and financial crises caused by the rapid outflow of foreign capital, Asian economies firmly maintained their foreign-exchange reserves and increased their holdings of foreign assets, for example, US Treasury securities. In addition, following China’s accession to the World Trade Organization at the end of 2001, its exports grew substantially, especially exports to the US. These two developments formed the backdrop to the widening of global current-account imbalances at the beginning of this century. Bernanke’s argument placed responsibility on surplus economies, such as those in Asia and energy-exporting countries, reversing the more common view that the US had a trade deficit because it consumed too much. This closely resembled the view of Stephen Miran, a member of the Trump’s second administration appointed to serve as a Federal Reserve governor. The difference between the two is that Bernanke was more moderate: unlike Miran, he did not seek to address the US trade deficit by strong-arming foreign countries. As for whether current-account imbalances are due to excess saving abroad or excessive consumption in the US, it remains difficult to reach a definitive conclusion. Bernanke argued that if the American public and government had been consuming excessively, US interest rates would naturally have been higher than the levels recorded at the beginning of this century. Having said that, some commentators argue that the bursting of the dot-com stock-price bubble and the September 11 terrorist attacks in 2001 plunged the US into recession. Although that recession was in fact short-lived, the Federal Reserve under Alan Greenspan nevertheless cut interest rates sharply and continuously, sowing the seeds of the subsequent “subprime crisis” and the global financial tsunami. With the US central bank injecting liquidity on a large scale, interest rates naturally remained low, encouraging US consumption and imports. The causal relationship has yet to be clearly established.

The ratio of the sum of the absolute values of economies’ current-account balances to global GDP remained above 5% for several years before 2008. The destructive force of the global financial tsunami then pulled the global economy into a severe recession and sharply compressed spending, leading this ratio to decline continuously over the following decade. By 2019, it had fallen back to 2.8%, a level comparable to that of the 1980s. In addition, after the financial tsunami, China increased investment to promote growth, which mitigated global imbalances to some extent. Since 2020, however, the ratio has returned to an upward trend, rising above 3% and approaching 4%. Although it remains below the level of more than 5% seen 20 years ago, it has already attracted the attention of policymakers and analysts.

Today’s global current-account imbalances are mainly regarded as policy-driven, unlike those of 20 years ago, which were seen as arising chiefly from market activity and structural differences among economies. An obvious example is the US government’s fiscal deficit. An economy’s current account reflects the aggregate income and expenditure positions of the government, businesses, and households. In 2005, the US federal government’s fiscal deficit was 43% of the nation’s current-account deficit. By 2025, that share had rocketed to 140%. In other words, the federal fiscal deficit was the main driver of the US current-account deficit that year. After Trump returned to the White House last year for a second presidency, he initially vowed to cut expenditure and improve the efficiency of the federal government. Yet, like other policies he has championed, such as last year’s reciprocal-tariff trade war and this year’s war against Iran, these efforts have been misguided and counterproductive. The US Congressional Budget Office estimates that the federal government will record a deficit of US$1.9 trillion in the fiscal year ending at the end of August this year. Excluding the two years affected by the COVID-19 pandemic, i.e. 2020 and 2021, this would be, in terms of total dollar value, the largest fiscal deficit in American history.

On the other hand, economies with current-account surpluses also generally achieve or maintain those surpluses through policy. China is a case in point. For instance, channelling resources towards high-technology industries through financial repression and meeting the interest expenses on local-government financing vehicle debt both affect households’ willingness and ability to consume. When it comes to global current-account imbalances, China and the US, the world’s two largest economies, are naturally central to the discussion. The fact is that China’s share has been declining for many years. China’s current-account surplus as a proportion of global GDP peaked at 0.66% in 2008 and, despite some fluctuations, has since followed a downward trend. Although it increased slightly in 2024, it remained below 0.4%. The corresponding figure for the US has also been declining, but it has consistently been higher than China’s. The US current-account deficit as a proportion of global GDP has stood close to 1% in recent years. Simply put, America’s impact on global imbalances is twice that of China.

In addition to China, oil-exporting countries and the European Union (EU) are major surplus economies. Their current-account balances as a proportion of global GDP have been higher than China’s in many years. The former enjoy natural advantages and require no explanation. The EU’s current account, by contrast, has moved from near balance at the beginning of this century to a substantial surplus today, and this too is the result of policy. After the eurozone debt crisis more than a decade ago, Southern European economies were forced to accept fiscal austerity as a condition for receiving financing from the EU and the IMF, placing greater constraints on consumption and investment. Meanwhile, the European Central Bank’s use of quantitative easing and negative interest-rate policies after the eurozone debt crisis weakened the euro against the greenback, benefiting eurozone exports.

Apart from being policy-driven, current concerns about global imbalances also involve stock considerations. The current account is a flow, indicating the amount of surplus or deficit in a given year. Behind a deficit is borrowing from abroad by the economy in question; deficits year after year mean continuously rising debt, and the market may one day doubt whether debtor economies can continue to bear that debt. The Net International Investment Position (NIIP) is precisely a measure of an economy’s net external liabilities, including those of the government, businesses, and individuals. As of the first quarter of 2026, the US NIIP had reached a negative US$21.3 trillion, equivalent to two-thirds of the country’s GDP. Inflationary pressure in the US persists, and market expectations have shifted from rate cuts at the beginning of the year to rate hikes at present. Rising interest rates further reduce debt sustainability. This is one consideration behind current foreign capital flows into the US. If not for the artificial-intelligence boom, these concerns would be even more evident.

While current global imbalances are smaller in scale than two decades ago, the international environment is clearly worse, the most obvious sign being the decline of multilateralism. The current account does not need to be balanced, but excessive or prolonged imbalances are detrimental to productivity and economic growth. Since multiple economies are involved, the ideal arrangement would be for the governments concerned to coordinate their economic policies. The current environment, nevertheless, is the exact opposite of this ideal. The best example is the US attempt to reduce its trade deficit by introducing reciprocal tariffs on various economies last year, which caused considerable damage to the world economy.