FX & Y: Playing musical chairs with global trade

American trade imbalances aren’t going away, just moving geographically

By the time Donald Trump entered the White House in 2017, faith in free trade among America's elite had already collapsed. Antipathy to globalisation was the closest thing Washington had to consensus, and the $552-billion deficit the United States ran that year was seen as evidence of national surrender. In the years since, presidents of both parties have wielded tariffs against adversaries and allies alike, raised regulatory barriers, and launched vast reshoring efforts aimed at closing trade imbalances—leading many pundits to declare the age of globalisation over.

Trade flows haven’t got the memo. Global volumes rose 7% in 2025, accelerating from 4% the year before, according to the World Trade Organization. Trump's “Liberation Day” tariffs, imposed last April with much theatre, did not reduce trade so much as reroute it: data published yesterday showed the gap between US exports and imports of goods (excluding petroleum and non-monetary gold) hitting $1.21 trillion in the year to March, more than 6% above the $1.14 trillion recorded over the same period in 2024.

What has shifted is the geography. China—the bête noire of trade hawks—has seen its share of American imports fall by 15.4 percentage points since 2017. That looks like progress, until one examines the rest of the map. Over the same period, Taiwan increased its share by 6.3 points, Vietnam by 4.7, and Mexico by 4.3, with a range of other countries picking up the slack. Some degree of transshipment is clearly happening, and supply chains have lengthened, meaning American consumers are paying a touch more, courtesy of tariffs and intermediaries, for largely the same goods.

Why does the aggregate refuse to budge? Because, as any first-year economics student is taught, a country's trade balance is determined less by tariff schedules and regulatory red tape than by the gap between what it saves and what it spends. While countries like China deliberately repress household consumption, generating a surplus of savings that must be invested abroad, America does the opposite, consistently implementing policies that boost domestic spending* and investment. Vast amounts of government borrowing help generate outsized private sector returns**, but also create a shortfall that must be financed by foreigners, who send goods in exchange for the dollars they accumulate. Tariffs reshuffle which countries do the sending. They do not alter the arithmetic.

What might drive a sustained reduction in trade imbalances? Broadly, four things: A sustained fall in the dollar, either spontaneous or, as some in Trump's circle have suggested, deliberately engineered through currency intervention. A sharp tightening of fiscal policy, for which neither party is displaying the slightest appetite. A dramatic reversal in global capital flows, with savers in other countries suddenly compelled to keep their money at home. Or a recession, which would suppress imports the old-fashioned way. None is appealing; the first two look improbable in the current political context; and the third and fourth tend to arrive uninvited.

For now, it seems likely the United States will continue to play musical chairs with its imbalances, evicting some partners and ushering in others each time the leadership changes. The globalisation chairs move. The trade music plays on.

- Karl Schamotta, Chief Market Strategist, Karl.Schamotta@Corpay.com

*The Financial Times published a piece by my brilliant former colleague Karthik Sankaran this morning on how the public-private mess otherwise known as the US healthcare system is a major contributor to these imbalances. It's well worth your time.

**Which enhance America's attractiveness from a capital flow standpoint, exacerbating underlying imbalances