Global Economic Rebalancing: Fancy and Reality

WANG Guogang

Director, Institute of Financial Research, Chinese Academy of Social Sciences

Abstract:

“Global economic imbalance” and “global economic rebalancing” have aroused great interest among international economic and financial research circles. As the global financial crisis begins to abate, some Western countries have used “global economic rebalancing” as an excuse for trade protectionism and restricting the foreign economic development of developing nations. As the basic theoretical justification for the “global economic imbalance,” the theory of international trade equilibrium is wrong both in theory and in practice, because it has never been proven in the 200 years of history since the Industrial Revolution. “Global economic rebalancing” contains serious policy traps and does not generate any winners. The exchange rate is only one of the factors which affect international trade; furthermore, it is not the fundamental mechanism. With the U.S. dollar retaining its status as the key currency of the international monetary system, it is impossible for the United States to achieve long-term foreign economic and trade equilibrium. The United States’ trade deficit is an inevitable result of the dollar’s status as an international currency.

Key words:

global economy, rebalancing, misconception

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