Remember the great rebalancing of the global economy? Of course you don’t. It never happened.
During the darkest moments of the deep recession that followed the financial crisis, there was plenty of talk about the need rejigger the orientation of giant global economies. China was supposed to tilt away from its focus on exports as the source of economic growth. And the US was supposed to cut down on consumption and boost its ability to sell things abroad.
The virtues of the plan were simple enough. China faced diminishing returns from its over-investment in factories, and needed to boost its consumer sector to keep growth up. (Former Prime Minister Wen Jiabao himself famously called the country’s economic model “unstable, unbalanced, uncoordinated and ultimately unsustainable.”)
That tilt towards consumption in developing nations would offer a new source of growth to exporters in countries like the US, which could no longer rely on tapped-out consumers as the sole engine of economic expansion.
It makes sense. But it hasn’t happened. The US trade deficit with China shrank sharply during the worst of the Great Recession, as US consumption briefly collapsed. But since then things have carried on as they have for much of the last few decades.
To wit, today’s update on US trade shows the world’s largest economy running its biggest-ever goods deficit with the People’s Republic. The deficit was $30.5 billion in September.
Now this isn’t exactly bad news. Deepening goods deficits with China are a sign of peppier domestic demand stateside. But it is a moment to note that even the deep recession that followed the crisis hasn’t changed much about the way the global economy works.