Trade imbalances have moved to the center of discussion

CHINA FINANCIAL - Report 24 Jun 2026 by Michael Pettis

Special points to highlight in this report:

- May’s data releases show the same pattern as has every monthly data release this year, including the continued deterioration in the demand side of the economy. Growth in industrial output was slightly down in May and year to date, while growth in fixed asset investment and retail sales was way down (actually negative). The data were confirmed by the continued rise in debt and more growth in the country’s trade surplus.

- But while the EU seems increasingly determined to join the US in resolving its trade imbalances, China seems increasingly reluctant to treat these imbalances as a problem that it can do anything about. What is more, the global consensus may be framing the issue incorrectly. If that is the case, we are increasingly likely to repeat history, in the sense that the resolution of trade imbalances will be costlier than anyone expected at the time.

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