A turning point in trade: The U.S. effort to reverse global imbalances

The Trump administration is seeking to reshape the global economic structure and international financial architecture that have prevailed for decades.

This vision challenges the foundations of the postwar global economic order. It has been articulated in relatively detailed terms by key advisers such as U.S. Treasury Secretary Scott Bessent and Council of Economic Advisers Chair Stephen Miran, acting under U.S. President Donald Trump’s direction.

For years, the global economy has operated on a model in which the United States ran persistent trade deficits by importing vast amounts of goods produced around the world while financing those deficits through capital inflows. As the world’s largest economy with strong domestic demand — driven by household consumption and business capital spending — the U.S. has absorbed an enormous volume of globally produced goods. U.S. imports exceed $3 trillion, making it the largest importer in the world. China and Germany — the second- and third-largest importers — import roughly $2.5 trillion and over $1 trillion, respectively.

One stark difference among the three countries is that, unlike China and Germany, which are the world’s top two trade surplus countries, the U.S. runs by far the world’s largest trade deficit — more than $1 trillion — dwarfing all other deficit countries. While U.S. imports account for only about 13% of the global total, its exports are significantly smaller, creating a large trade imbalance. Since trade balances must, by definition, net to zero globally, the U.S. trade deficit is mirrored by persistent trade surpluses elsewhere, especially in Asia.

This large trade imbalance is also the primary driver of the U.S. current account deficit, largely due to the gap in goods trade. Since the early 1980s, the U.S. has consistently run current account deficits that have been offset by net cross-border investment inflows — namely, foreign capital flowing into the U.S. in the form of direct investment, securities purchases and bank loans. These inflows have led to a buildup of U.S. external debt, effectively making it the world’s largest net debtor nation.

The U.S. has been able to attract capital from around the world at relatively low cost because it issues the world’s reserve currency, the greenback. At the same time, countries in Asia have accumulated large foreign exchange reserves — mainly in U.S. dollars — by maintaining trade surpluses. This has helped them build economic resilience against external shocks.

Foreign reserves, held by central banks or governments, serve as a buffer during economic crises. They help countries defend their currencies or use foreign reserves to buy essential imports during foreign exchange shortages. These reserves are typically held in U.S. Treasury securities — considered the world’s safest assets — and form the core of such global holdings. As a result, the U.S. has developed the world’s deepest and most liquid capital, financial and foreign exchange markets.

Most countries prefer to maintain trade surpluses rather than deficits. Persistent trade deficits tend to increase external debt, undermine investor confidence and lower sovereign credit ratings, while sustained surpluses allow countries to accumulate foreign reserves. Many past financial crises in emerging and developing economies were triggered by insufficient foreign reserves and collapsing currencies. Given the volatility of private capital flows, maintaining adequate reserves is widely seen as a prudent safeguard.

Japan is a case in point. Despite long-standing sluggish economic growth and the world’s highest government debt ratio — about 260% of gross domestic product — the country’s net international investment position remains strongly positive. This is due not only to large official reserves accumulated mainly before 2010, but also to the fact that Japan’s overall public and private foreign assets exceed its liabilities as a result of capital account surpluses.

Until around 2010, trade surpluses — driven primarily by the buildup of a strong manufacturing base — were the main factor contributing to current account surpluses. Since then, current account surpluses have been sustained by increasing income balance surpluses, partly driven by the diversification of production locations across the globe.

But this approach is not without cost. When many countries seek to build up foreign reserves by shifting toward current account surpluses, they tend to increase domestic savings relative to investment — often resulting in subdued domestic consumption or capital spending. This dynamic leads to weak domestic demand and an economic model that becomes increasingly reliant on exports, which — from the U.S. perspective — raises concerns about global economic imbalances and overdependence on the American consumer.

The U.S. administration now seeks to challenge and reverse long-standing global economic patterns. Its goal is to revive domestic manufacturing, boost production and reduce reliance on imports. Rather than simply cutting imports, the U.S. aims to encourage foreign companies to relocate production to American soil — part of a broader strategy to narrow the trade deficit.

At the same time, U.S. trade partners are expected to reduce excess savings by stimulating domestic consumption and increasing business investment, thereby contributing to new sources of economic growth and global demand. In parallel, allied nations are also expected to demonstrate a stronger commitment to defense by raising military spending and bearing a fairer share of collective security responsibilities.

Many economists remain skeptical about the feasibility of this transition. It would also likely entail significant structural adjustments and short-term economic pain. However, if successful, it could force a fundamental rethinking of economic strategies in Asia — particularly in countries reliant on export-led growth models. In this context, it is notable that Treasury Secretary Bessent recently called for the International Monetary Fund to place greater emphasis on surplus countries and offer more proactive policy advice aimed at achieving better balance in the global economy.

The United States possesses extensive economic, technological, military and energy resources. It is also a major exporter of agricultural products such as soybeans, corn and livestock. These strengths underpin the continuing role of the U.S. dollar as the world’s primary reserve currency.

But if the U.S. succeeds in reducing its trade and current account deficits, other currencies may need to play a larger role in the global reserve system — unless the so-called ratchet effect is addressed. This effect refers to the tendency of countries to accumulate larger foreign exchange reserves, often in excess of what is economically necessary. Once built up, such reserves are rarely drawn down, creating persistent global imbalances.

The implications of this bold U.S. economic reorientation warrant deeper global attention and debate that goes beyond the knee-jerk headlines.