Trade imbalances have long been a sticking point in international economics, most recently between the United States and China. The conversation about persistent trade imbalances tends to take on a moral dimension, whether praising German thrift, criticising American profligacy, or accusing China of nefarious behaviour.
In Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace (Yale University Press, 2020), Michael Pettis and Matthew C. Klein explain the source of persistent trade imbalances with this simple thesis: “Rising inequality within countries heightens trade conflicts between them.” Trade surpluses occur when policies serve to transfer wealth and income away from those who would spend more on goods and services and towards the elite, who instead use the income to purchase financial assets.
In this interview with Michael Pettis, we discuss the cause of trade imbalances, the situations where they do harm to national economies, and what kinds of policies might resolve them. We also talk about some of the new policies being developed in China, such as the proposed shift to domestic consumption under the new “dual circulation” strategy.
Michael Pettis is Professor of Finance in the Guanghua School of Management at Peking University, and an expert of the Chinese financial system. He is also a Senior Fellow at the Carnegie-Tsinghua Center for Global Policy, where you can subscribe to his China Financial Markets newsletter. You can follow him on Twitter at @michaelxpettis.
You can find more reviews, excerpts, interviews, and essays at The Asian Review of Books, including its review of Trade Wars are Class Wars. Follow on Facebook or on Twitter at @BookReviewsAsia.
Nicholas Gordon is a reviewer for the Asian Review of Books. In his day job, he’s a researcher and writer for a think tank in economic and sustainable development. He is also a print and broadcast commentator on local and regional politics. He can be found on Twitter at @nickrigordon.
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