{"text":[[{"start":6.8,"text":"The writer is an FT contributing editor and writes the Chartbook newsletter"}],[{"start":11.46,"text":"The summer of 2026 will be remembered for two great macroeconomic themes: the return of the debate around global imbalances — aka “China shock 2.0” — and the kerfuffle in the world’s largest financial market, that for US Treasuries."}],[{"start":26.64,"text":"Both issues are important in their own right. Even more telling as to the state of the world, however, may be the increasingly tenuous connection between them."}],[{"start":35.92,"text":"Once upon a time, the nexus linking deficits and global imbalances seemed clear. In the early 2000s, the coincidence of the free-spending and tax-cutting George W Bush presidency with China’s entry into the World Trade Organization defined a new era of globalisation. The US generated budget deficits and issued debt in huge volumes, but not in such quantities as to swamp demand. The main buyers of the new debt issuance were reserve managers in surplus economies, notably China, which was happy to engage in an unprecedented build-up of reserves."}],[{"start":70.44,"text":"The system was held in place by systematic manipulation of the balance of payments and exchange rates, which slowed yuan appreciation against the dollar. This was a rigged system designed to supercharge China’s industrial development. But in reconciling global imbalances and questions of US Treasury funding, it created what is known as “Chimerica”, a form of macroeconomic yin and yang."}],[{"start":93.48,"text":"Today, both the Chinese and the US economies are still characterised by serious and opposite domestic disequilibria. As they must, these spill over into international imbalances."}],[{"start":105.08,"text":"China has inadequate domestic demand and unprecedented trade surpluses. Any adjustment in prices is still blocked by Beijing’s manipulation of the exchange rate. China could allow a revaluation and wholesale domestic restructuring. But there are serious political obstacles."}],[{"start":121.36,"text":"In the US meanwhile, the political impasse is even deeper. With the radicalisation of the Republican Party, Congress is deadlocked on fiscal issues. After the Bush tax cuts of the early 2000s came the emergency spending of 2008, then the Trump tax cuts of 2017, Covid relief and now the “Big Beautiful Bill”. The deficit tap is stuck permanently on. The current deficit of 6 per cent at near-full employment is unprecedented."}],[{"start":148.2,"text":"Given the demand being pumped into the US economy by the federal government, the corporate and household sectors are, unsurprisingly, in surplus. Corporate America generally runs a tight ship, but Silicon Valley is on a debt-fuelled bender. This helps to keep the private sector surplus far below the public sector deficit. And, as a result, the current account deficit gapes."}],[{"start":170.48,"text":"Even with tariffs at levels not seen in decades and a net surplus in energy, the US is running huge trade deficits. The AI boom is sucking in computers and chips from Asia, which, thanks to assiduous lobbying by Silicon Valley, are exempt from tariffs. Meanwhile, the rest of the traded economy feels the squeeze."}],[{"start":190.04,"text":"So, plus ça change? Certainly, the timeless verities of macroeconomic balancing still apply. In the overall accounting of the global economy, China’s surplus and the US deficit are each other’s counterparts. Decoupling is an illusion."}],[{"start":204.76,"text":"But what in the 2000s formed the Chimerica synthesis no longer does. The increment to China’s trade surplus is not principally with the US. China shock 2.0 is being felt elsewhere, most notably in Europe."}],[{"start":218.38,"text":"China goes on accumulating foreign claims. Its net surpluses are growing by $1tn per year. But what is clear is that those foreign currency earnings are no longer, as they were in the 2000s, smoothly flowing into the US Treasury market."}],[{"start":232.84,"text":"Even as the US government continues to issue new debt and roll an increasingly daunting stock of liabilities, new reserve accumulation has largely stopped. Treasuries still find buyers. But flighty, profit-driven investors play a larger and larger role. What that means is that the safe asset quality of US Treasuries can no longer be taken for granted on either side. In the final analysis, even if short-term investors hold the debt in derivatives trades, someone is funding the hedge funds. Assets and liabilities match. But Wall Street has to work harder and harder to maintain the balance."}],[{"start":266.4,"text":"Our old vision of Chimerica was too neat. It was a macroeconomic just-so story, rather than a genuine synthesis of compatible policies. It was not destined to last. At least, however, it promised stability. Present-day realities offer nothing of the sort."}],[{"start":284.74,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788855119_6233.mp3"}