Martin Feldstein

The G-20's empty gestures

By Martin Feldstein (
Updated: 2011-04-28 14:27
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CAMBRIDGE – The world's 20 most important finance ministers and 20 most important central bankers traveled to Washington this month from every part of the globe to accomplish, predictably, exactly nothing.

The subject of the G-20’s recent meeting was “global imbalances.” According to the communiqué issued by the group, the meeting focused on developing a procedure for identifying which G-20 countries have “persistently large imbalances” and why they have them. This delicate analytical task was assigned to the International Monetary Fund, which is to complete its work before the ministers’ next meeting in October.

It hardly takes a team of IMF economists to answer these questions. Anyone who has taken a first-year undergraduate course in economics would have no difficulty in identifying the countries with the largest trade surpluses and deficits. The United States wins first prize with a trade deficit of more than $650 billion in the most recent 12 months. No other country comes close enough to be awarded second prize.

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The broader current-account indicator (which includes trade in services and net investment income) confirms America’s leading role: its external deficit is nearly $500 billion. No other country has more than a $100 billion current-account deficit.

Even if we look at current-account deficits relative to countries’ GDP, America’s 3.3% ratio exceeds that of almost every other economy. The three countries with larger deficit-to-GDP ratios have a combined deficit of less than $70 billion – not enough to warrant the G-20’s attention.

The country with the largest current-account surplus is, no surprise, China, with a positive balance of more than $300 billion. Japan and Germany are the only other countries whose current-account surpluses exceed $100 billion.

China’s current-account surplus is 4% of its GDP. Several oil producers have larger relative current-account surpluses that, combined, exceed China’s in absolute terms. And there are several other European and Asian countries with higher relative current-account surpluses that together exceed that of China.

But the G-20’s decision to focus only on member countries that account for more than 5% of its combined GDP will exclude these smaller countries from the spotlight. Only China and the US, and perhaps Germany and Japan, will be at center stage.

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