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Alex Lo

Michael Pettis says a great rebalancing is coming and China will pay for it. It’s strange how the man who insists that power decides who pays never tests his claim on Washington. The Beijing-based economist has been warning that a great rebalancing is coming since he published a book called The Great Rebalancing. That was in 2013.
His latest Foreign Affairs offering? You guessed it: “A Great Rebalancing Is Coming: Who Will Bear the Costs of a Global Trade Adjustment?”
It’s the same plot: Today’s trade imbalances are untenable. China, Germany and a few others sell far more than they buy. America buys far more than it sells. And for a rich economy, a permanent deficit means either more joblessness or more debt. How about both?
Then Pettis’ history tour. Oil money recycled into Latin America, blown up by rising interest rates in the early 1980s. East Asia in 1997. Southern Europe after 2008. Every imbalance ends. Every ending hurts. It may soon be China’s turn. Perhaps.
He is right about one thing: who suffers and pays in a crisis is decided by power, not virtue. Weak countries pay because they can’t borrow on their own terms, defend their currencies or slow down capital flows without triggering a crisis. He thinks America is best placed to escape an impending crisis, and China is most exposed to it. Why?


The IMF puts China’s current account surplus at 3.3 per cent of gross domestic product (GDP) for 2025. December retail sales grew 0.9 per cent, the weakest since late 2022. Household consumption accounts for only about 40 per cent of GDP.
China has a spending problem. Everyone knows it. The trouble is what Pettis builds on that. One country’s surplus is another country’s deficit; your debt is my asset. That’s not a crime. There is no villain hiding in the equation. But Pettis quietly turns it into a one-sided police charge sheet against China.
Washington ran a US$1.8 trillion deficit in fiscal 2025, and US$40 trillion in total national debt. The current deficit is about 5.9 per cent of GDP. Public debt is about 100 per cent of GDP. Interest payments alone surpassed US$1 trillion annually. Nobody in Beijing wrote that budget.
It’s true that with Latin America, East Asia, southern Europe, every single victim had borrowed in a currency it could not print. When the money dried up, a crisis hit.
China owes its debts in yuan, to itself, behind a capital account Beijing can shut on a Tuesday afternoon. Who is more exposed?

It’s clear that ending US dollar dominance would be fought tooth and nail by Washington, Wall Street and big business. The empire needs to keep the reserve currency, the sanctions weapon and the cheapest borrowing on Earth, then post the bill for its deficit to Beijing. That is like a man complaining about his electricity charges while refusing to switch off the floodlights blinding the whole neighbourhood.
Pettis’ recommended cure is tariffs on the Chinese: “If the United States uses industrial policy to expand domestic manufacturing capacity and, more important, takes greater control over its trade and capital flows using tariffs and other restrictive measures, China and other major surplus economies will not be able to maintain their surpluses with corresponding US deficits.”
He is assuming that Americans want to work more and buy less. Applying Pettis’ logic of power, a weak China lost the Opium War in the 19th century; a powerful China probably won’t lose the trade war in the 21st.
He never asks what ending the surplus would cost everyone else. Solar panels, a global market dominated by China, fell more than 70 per cent in price between 2022 and early 2025. Doubling the electricity used by sub-Saharan Africa’s 1.25 billion people would take about US$25 billion worth of panels – roughly what the region already burns on generator fuel each year.

China’s excess capacity has been building the world. America’s only excess capacity has been used to arm or bomb others. Give me a “white elephant” structure over a bombed-out girls’ school full of dead children any day.
Beijing has issued its first five-year plan devoted entirely to consumption, targeting 60 trillion yuan in retail sales by 2030. Meanwhile, 12.4 trillion yuan has been allocated to education, welfare, health and housing in 2026.
Up to a point, China should, and is trying to, rebalance. But it will not be paying tribute to a US that can’t balance its own books, to finance a military-industrial-tech complex that will wreck more havoc around the world.


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While China does have a large trade surplus, economist Michael Pettis’ argument that Beijing is most vulnerable to a global adjustment is not convincing


While China does have a large trade surplus, economist Michael Pettis’ argument that Beijing is most vulnerable to a global adjustment is not convincing.


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If a ‘great rebalancing’ is coming, will China really have to pay for it?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}While China does have a large trade surplus, economist Michael Pettis’ argument that Beijing is most vulnerable to a global adjustment is not convincing

While China does have a large trade surplus, economist Michael Pettis’ argument that Beijing is most vulnerable to a global adjustment is not convincing