Karthik Sankaran is a senior research fellow, geoeconomics in the Global South program at the Quincy Institute for Responsible Statecraft.
In 2025, China’s goods surplus reportedly came in at around $1.18tn. The US goods trade deficit that year was $1.24tn. That these two numbers are almost equal to each other has led to a widely shared conclusion that global imbalances stem from Chinese surpluses and American deficits, and an active debate on the causes. But a third number, $1.5tn, or the annual excess of US healthcare spending relative to its developed country peers, has not received as much attention. Perhaps it should.
One view is that the imbalances are entirely China’s fault, as articulated by Michael Pettis. He has insisted for years that China’s industrial competitiveness (and by implication, its trade surplus) is a consequence of policies favoring low wages relative to productivity and thus a low consumption share of GDP. The other, more orthodox, side of the debate, exemplified by Maurice Obstfeld, argues that “the bottom line is that the [US] government’s deficit is a main driver of the trade deficit.” And this is where the dispute has mostly stalled out.