They give rise to concerns related to deindustrialisation and its consequences in the European Union, leading for instance President von der Leyen to declare that, “[a]s we said to the Chinese leadership, for trade to remain mutually beneficial, it must become more balanced”. And they lead an increasing number of emerging countries to apply trade remedies protecting their own industry against Chinese exports. Analytically, Autor et al. (2013; 2016; 2024) have convincingly illustrated both the importance of the social and local impacts of China’s competition as well as their political consequences – they are now emphasising the risk of a ‘China shock 2.0’ (Autor and Hanson, 2025). Meanwhile, the use of industrial policies is spreading, and they are becoming an important issue for international coordination (e.g., Evenett et al., 2024).

Given that the analytical literature on global imbalances through the lens of current accounts is sound and rich, how should this apparent mismatch be interpreted? In addressing this question, this chapter reconsiders the merits of a complementary focus on trade surpluses (as opposed to the traditional focus on current deficits).

From an analytical point of view, does it make sense to focus on this specific sub-dimension of the balance of payments? On practical grounds, does it lead to a meaningfully different picture? To what extent are outcomes in this area related to industrial policy practices? Does it matter for international coordination purposes?

To address these questions, this chapter first recalls the standard focus in the analysis of global imbalances, where the current account takes centre stage. It then reconsiders the reasons why trade surpluses may be a legitimate concern in their own right, arguing that they need not be innocuous, temporary, or the natural outcome of market mechanisms, as is often assumed. The geopolitical sensitivity of the issue is also emphasised.

Turning to the empirical evidence, I document a global landscape of trade imbalances increasingly dominated by China's surplus, especially in manufactured goods, and examine how it relates to deliberate policy choices — both in macroeconomic management and in exchange rate policy.

Another issue is the role of industrial policies. While they could contribute to the overall size of the trade surplus to the extent that they favour tradable goods (manufactured ones in particular) with respect to nontradables, the main concern is about their sectoral impacts for partners. To address this, I analyse empirically China’s net exports by product, through both graphical and econometric methods, and find that they are significantly and substantially boosted by domestic subsidies. The analysis of prices is consistent with these findings. As such, these policies de facto make trading partners the adjustment variables of China’s policy priorities – exactly what international coordination (and, for that matter, the WTO Agreement on Subsidies and Countervailing Measures) is supposed to prevent.

In focusing on trade imbalances and the challenge they represent for international coordination, this analysis does not warrant, even less argue for, a confrontational approach to dealing with these imbalances. On the contrary, it is rooted in the belief that a shared understanding of the causes and consequences of imbalances is a prerequisite for any successful coordination.

Read the chapter here, (p.263-289).
 

Jean, S (2026), ‘Global imbalances, industrial policies, and the challenge of surging Chinese trade surpluses‘, in Rey, H, B Weder di Mauro and J Zettelmeyer (eds), Paris Report 4: The New Global Imbalances, CEPR Press, Paris & London. https://cepr.org/publications/books-and-reports/paris-report-4-new-global-imbalances