Till a year ago, the underpinning of the global economy and trading system was the “indebted” American consumer. The global superpower, the US, ran a $1.2 trillion-dollar current account deficit with the rest of the world, with China running the largest bilateral trade surplus of $295.4 billion (exporting $439 billion to the US). On the capital account, the US had achieved the unimaginable. Earning more on its roughly $35 trillion invested in the rest of the world then it paid out on its $62 trillion inflows (about 40% of which was in fixed income and US government debt instruments). Though its net international investment position was very negative, its net investment income was positive till last year. This was made possible, primarily, because the dollar was the reserve currency and the international medium of exchange.

US retail consumption was fuelled by debt. Equally, the US government ran a massive fiscal deficit which accentuated to over 6% of GDP (around $2 trillion) post the handouts made during Covid. The largest lenders to the US were Japan and China (holding over a trillion dollars of US treasury). China’s economy was export based and since the turn of the century, it became the largest trading partner to all countries other than the Nordics, the UK, France and Germany, replacing the US in that role. China today is around 36% of global manufacturing, 18% of global GDP and only 13% of global consumption. Essentially today, Americans consume too........

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