Country trade imbalances are an existential threat to the global trading system 1

Written by: Stewart Paterson, Hinrich Foundation Research Fellow

Persistent trade surpluses and deficits by major trading nations have contributed to imbalances in the global trading system and today’s trade conflict. The failure of the global trading system to tend towards balance has been the result of exchange rate anomalies.

Over the last decade, Germany and China have run cumulative trade surpluses of USD 2.6 trillion and USD 2 trillion respectively, supported by inflexible exchange rates. Corresponding capital flows have also posed a threat to global financial stability. Achieving sustainable global trade will require nominal exchange rate flexibility.

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