China-US trade imbalance has ‘tenuous’ link with industrial policy: IMF economists

Worries that the trade imbalance between China and the United States resulted from industrial policies reflect an “incomplete” view, according to economists from the International Monetary Fund (IMF).

The view came at a time when Washington, together with its Western allies, have been critical of Beijing’s industrial overcapacity and massive export machine, resulting in tariffs on made-in-China products, including electric vehicles (EVs).

“The link to trade and industrial policy is more tenuous,” IMF economists Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, Krishna Srinivasan and Rodrigo Valdés said in a report released on Thursday.

They argued that “external balances” are ultimately determined by macroeconomic fundamentals.

“These [macroeconomic factors] include negative domestic demand shocks in China, due to the property market downturn and low household confidence, as well as a dissaving shock in the United States due to elevated government and personal spending,” they added.