Economist Michael Pettis has long argued that a significant global trade rebalancing is imminent, with China bearing the brunt of the adjustment. Pettis, based in Beijing, first popularized this view in his 2013 book "The Great Rebalancing" and recently reiterated it in a Foreign Affairs article titled “A Great Rebalancing is Coming: Who Will Bear the Costs of a Global Trade Adjustment?”

Pettis’s central thesis revolves around persistent global trade imbalances, where economies like China and Germany run substantial surpluses, while the United States maintains significant deficits. He contends that such imbalances are unsustainable over time and typically end in painful economic disruptions. Historically, similar adjustments have occurred in Latin America in the 1980s, East Asia in 1997, and Southern Europe after the 2008 financial crisis, each episode marked by considerable economic hardship for the deficit countries involved.

According to Pettis, the question of who suffers most during these adjustments depends largely on economic power. Weak countries, unable to borrow cheaply or manage capital flows, tend to bear the costs of crises. He suggests that the United States, with its dominant global financial position, is better equipped to weather a trade adjustment, whereas China remains more exposed.

Data from the International Monetary Fund (IMF) indicate China’s current account surplus is projected at 3.3 percent of GDP in 2025. However, recent economic indicators highlight challenges within China's domestic economy, such as a slowdown in retail sales growth and relatively low household consumption, which accounts for around 40 percent of GDP, underscoring a well-known issue of insufficient domestic demand.

Critics of Pettis point out that while China runs trade surpluses, the United States operates a large fiscal deficit, estimated at $1.8 trillion for fiscal 2025, alongside a national debt nearing $40 trillion. The U.S. current account deficit stands at approximately 5.9 percent of GDP, with public debt at about 100 percent of GDP. Interest payments alone have recently exceeded $1 trillion annually. These figures highlight significant fiscal vulnerabilities in the U.S. that Pettis does not emphasize as strongly.

Moreover, China’s debt is largely denominated in its own currency, the yuan, and its capital account remains tightly controlled by the Beijing government, which can restrict capital flows if necessary. This position contrasts with past crises in Latin America, East Asia, and Southern Europe, where countries owed debts in foreign currencies they could not issue, exacerbating their vulnerability.

Pettis advocates for the U.S. to adopt protective measures such as tariffs and industrial policies aimed at reducing reliance on Chinese imports, which he sees as necessary to correct trade imbalances. Yet, this approach assumes American consumers are willing to work more and spend less, an assumption some economists view as overly simplistic in light of the complexities of global supply chains and consumer behavior.

The broader implications of rebalancing could also affect global markets. China's surplus capacity has contributed to dramatically lower prices for goods like solar panels, benefiting developing regions such as sub-Saharan Africa by expanding access to affordable energy solutions. Restricting Chinese trade surpluses without considering these downstream effects could hamper global economic development.

In response, Beijing has recently rolled out its first consumption-focused five-year plan, aiming to stimulate domestic retail sales to 60 trillion yuan by 2030. The 2026 budget further allocates 12.4 trillion yuan toward education, welfare, health, and housing, signaling efforts to shift the economy toward more balanced growth.

While China appears committed to internal rebalancing, observers note the risks of expecting it to bear disproportionate costs for global imbalances. Given the United States’ persistent fiscal challenges and military expenditures, questions remain about the feasibility and fairness of imposing such an adjustment primarily on China.