GM102: China Built a Trap. Germany Set It. America Fell In. Europe Is Next ft. Michael Pettis

Trade imbalances are fundamentally driven by income inequality rather than price effects, as systemic reliance on suppressed wages boosts competitiveness at the expense of global stability. Germany’s Hartz reforms and China’s investment-led growth model exemplify how nations export the consequences of domestic policies to trade partners through persistent surpluses. These imbalances force deficit economies, particularly the United States, to absorb excess capital, which fuels debt-driven consumption and asset bubbles. As the U.S. moves toward reindustrialization to address its trade deficit, the global system faces a precarious adjustment. Without a new international regime that penalizes persistent imbalances—similar to John Maynard Keynes’ original Bretton Woods proposal—the world risks a contraction in global trade, with Europe likely forced to bear the brunt of the necessary structural shifts as it struggles to maintain its manufacturing share against subsidized foreign competition.