If a ‘great rebalancing’ is coming, will China really have to pay for it?

Michael Pettis says a great rebalancing is coming and China will pay for it. It’s strange how the man who insists that power decides who pays never tests his claim on Washington. The Beijing-based economist has been warning that a great rebalancing is coming since he published a book called The Great Rebalancing. That was in 2013.

His latest Foreign Affairs offering? You guessed it: “A Great Rebalancing Is Coming: Who Will Bear the Costs of a Global Trade Adjustment?”

It’s the same plot: Today’s trade imbalances are untenable. China, Germany and a few others sell far more than they buy. America buys far more than it sells. And for a rich economy, a permanent deficit means either more joblessness or more debt. How about both?

Then Pettis’ history tour. Oil money recycled into Latin America, blown up by rising interest rates in the early 1980s. East Asia in 1997. Southern Europe after 2008. Every imbalance ends. Every ending hurts. It may soon be China’s turn. Perhaps.

He is right about one thing: who suffers and pays in a crisis is decided by power, not virtue. Weak countries pay because they can’t borrow on their own terms, defend their currencies or slow down capital flows without triggering a crisis. He thinks America is best placed to escape an impending crisis, and China is most exposed to it. Why?

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The IMF puts China’s current account surplus at 3.3 per cent of gross domestic product (GDP) for 2025. December retail sales grew 0.9 per cent, the weakest since late 2022. Household consumption accounts for only about 40 per cent of GDP.