In This Review

The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy
The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy
By Michael Pettis
Princeton University Press, 2013, 216 pp.

Pettis asserts that the world economy suffers from unsustainable imbalances that must be eliminated. China, Germany, Japan, and several smaller countries enjoy large current account surpluses, while the United States and many other countries run up trade deficits. Pettis applies basic macroeconomic theory to counter the common error of thinking that any single country can eliminate its imbalances on its own. In one sense, global trade is a zero-sum game: one country’s surplus is another country’s deficit. But regardless of that simple truth, Pettis has little hope that countries will be able to work together to ration-ally rebalance one another’s economies. Instead, Pettis foresees a period of reduced demand for goods and services around the world, a state of affairs that will tempt countries currently running trade deficits to protect their domestic industries at the expense of free trade. Perhaps his most striking forecast is that as China shifts its focus from investment to consumption during the coming decade, its annual GDP growth will average no more than three percent.