Collision course: why the G7 fears that imbalances in the global economy will end in crisis

G7 countries call for de-escalation of the conflict between Israel and Iran
REUTERS/Suzanne Plunkett/Pool
The increase in China's exports, the deterioration of the United States' accounts and the low level of investment in Europe have worried the G7, a group that brings together the seven largest developed economies in the world. The fear is that this scenario will increase trade tensions and leave the global economy more vulnerable to financial crises.
The issue has been one of the priorities of France, which currently holds the presidency of the group. According to French President Emmanuel Macron, imbalances between world trade and the circulation of capital between countries have reached "unsustainable" levels. The topic will be on the agenda of the leaders' summit scheduled for this week.
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Last month, G7 finance ministers agreed that coordinated action is needed - something that has been difficult to achieve within the wider G20 group for years. They also warned that, without a joint response, these imbalances could evolve into a financial crisis.
Understand in this report what the main concerns of the world's largest economies are.
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A world of savers and spenders
Current account balances, an indicator that measures the inflow and outflow of resources from a country - including imports, exports, investment income and foreign aid -, show a growing imbalance since the Covid-19 pandemic.
After falling in In the years following the global financial crisis of 2008 and 2009, China's surplus once again reached record levels.
At the same time, the euro zone maintained its position as a creditor to the rest of the world, while the USA continues to depend on foreign capital to finance its consumption.
In practice, this means that savings accumulated in some countries are being used to finance consumption in others - mainly in the USA, today the main destination for these resources.
China: surpluses generated because of overcapacity
China's growth model, based on exports, has been increasingly criticized. For critics, government incentives have increased production to levels far exceeding the country's domestic consumption.
China's position in international accounts has changed drastically in recent years. Since the pandemic, the current account surplus - when a country receives more resources than it spends abroad - has jumped to a record US$735 billion, driven by strong export growth, despite higher tariffs imposed by the US.
Weak domestic demand and strong growth in exports of industrialized products have expanded the Chinese surplus.
Critics, including US President Donald Trump, claim that a currency kept artificially devalued favors the country's exports. They also argue that Chinese companies receive subsidies on a scale greater than that observed in most developed economies.
In December, Macron stated that, if the main economies do not rebalance themselves through cooperation, Europe "will have no other choice" but to adopt protectionist measures.
➡ Protectionism is the set of policies that seek to favor national production and limit foreign competition. This can be done through import tariffs, subsidies for local companies or other measures to encourage the domestic economy.
Beijing rejects the criticism and claims that its companies are competitive. The Chinese government also says it will defend its interests in the face of any trade barrier.
Persistent US deficit
In contrast, the US continues to be the main driver of global consumption. The country spends more than it produces, a reflection of high family consumption and low savings rate.
This pattern was reinforced by policies to increase spending and tax cuts. Added to the stimuli adopted in times of crisis and pandemic expenses, these factors increased the federal deficit.
This combination makes the US dependent on resources from abroad. In practice, the country uses savings accumulated by surplus economies to finance its domestic spending.
While this dynamic helps sustain global growth, it also increases trade tensions. This is because American authorities have resorted to tariffs and industrial policies to try to reduce deficits that have been recurring for decades.
Europe: surplus driven by underinvestment
While China's surplus is linked to excess production, Europe's has another origin: the low level of investment within the bloc and the high savings rate.
According to a report released in 2024 by the former president of the European Central Bank (ECB), Mario Draghi, European countries need to transform more of family savings in productive investments - such as works, technology and company expansion. Otherwise, they risk falling even further behind the US and China.
Since the start of the pandemic, investments in the euro zone have grown much less than in the US, especially in the area of technology.
Economists say that the low level of investment reduces economic activity within Europe. As a consequence, part of the savings ends up being invested in other countries in search of better returns, contributing to the surplus in the euro zone's external accounts.

Source: G1