China and the US should sort out their own policies to tackle the imbalance that’s straining their ties

Subscribe to enjoy similar stories.As Donald Trump and Xi Jinping engage in high-stakes talks in Beijing, the underlying context is that global imbalances are widening again, with the US and China at the centre. But the central economic problem between the world’s two big economies is being misdiagnosed.The US–China imbalance is not fundamentally a trade policy problem. It is a structural macroeconomic imbalance rooted in savings, investment, fiscal choices and the architecture of the international monetary system.

Until those drivers are addressed, tariffs and bilateral deals will merely reshuffle trade flows while leaving the underlying imbalance intact. At first glance, Trump’s complaint appears intuitive. China’s exports are surging.

Its manufacturing dominance is expanding across electric vehicles, batteries, solar panels, electronics and advanced machinery. Even where direct exports to the US have slowed, exports to emerging markets have risen sharply, through reconfigured supply chains that feed advanced-country demand.The imbalance, in other words, is not narrowing. It is being rerouted.But this raises a harder question: is China simply moving up the value chain through comparative advantage, or are industrial policies and subsidies distorting the system?The answer is likely both.

China has built formidable industrial capabilities, supported by scale, infrastructure and supply-chain integration. Recent analysis by the International Monetary Fund (IMF) reinforces the ambiguity. It finds little empirical evidence that industrial policies have driven China’s aggregate external surplus.