International Payments Imbalances And Power Transfer

The financial crisis of2008highlights the problem of global economicimbalances, especially the problem of global payment imbalances which feature bytrade deficits among developed countries compared to trade surplus among emergingcountries. As the world’s biggest economy, the United States is running the largesttrade deficit while the second-biggest economy China, the largest trade surplus,which presents one of the most striking phenomenon since the beginning of thiscentury.Global payment imbalances may lead to the slowdown in exports for deficitcountries, which inevitably takes a toll on the domestic employment, resulting inwage decrease. Consequently, consumption falls, exerting a negative impact onindustry and service sector, and ultimately affecting the overall economic growth.Therefore, long-term imbalances are not sustainable. However, for surplus countries,trade surplus may in the short run bring more exports, provide good conditions forindustrial restructuring and upgrading, raise employment rate and increase nationalwealth. Nevertheless, in the long run, too much surplus may cause currencyappreciation, which also leads to the slowdown in exports and employment,ultimately affecting the overall economic growth. Therefore, long-term trade surpluswould cause negative effects on national economy as well.Under such circumstances, global imbalances will not continue indefinitely.Relevant countries will surely take measures to pursue rebalance by adjusting itsforeign economic policy to avoid the negative effects of imbalances, the tradefrictions that may cause sanctions and even the potential serious internationalconflicts. In the rebalancing game, both sides work to coordinate mutual rights andinterests, and to avoid frictions through power adjustment or rather power transition.In this paper, we shall label the power produced by payment as the payment powerand the power transition caused by global imbalances as the payment powertransition. In order to analyze this phenomenon, this paper comes up with a core hypothesis:as global payment imbalances cause the power imbalances, the rebalance processrepresents the power adjustment process. To analyze this hypothesis, this paperdesigns an analytical framework: first, let’s suppose the payment is balanced amongcountries, and then the power is balanced. But due to the advance of science andtechnology and institutional innovation among others, some countries may experiencemore rapid economic growth, an increase in exports and trade surplus. In another case,some countries undergo retrogress with a decline in exports or a increase in importand thus a rise on deficits. The payment imbalances require the rebalance betweenboth sides not only in terms of payment but also rights and interests. In the process,after multiple games, both sides realize the power transition through adjustment inmutual rights and interests. And thereby a new balance comes into being.Besides putting forward an analytical framework, this paper also illustrate onthis adjustment which is divided into four phases of balancing. In the first phase, dueto the payment balance, the power is also balanced and there is no power transitionamong states. The second and third phases are about the global imbalances and thetransition of power to varying degrees. The two phases are called the transitionalgrowth phase and the mature phase of power transition. In the phases, the powertransition is not complete, that is to say, there is only a quantitative change. Thefourth phase is where the power transition is complete. In other words, the power istransitioned from one party to another and there is a qualitative change. When thetransition is complete, balance is restored which marks the end of this transition.Actually, global imbalances are normal, so is the power transition. Countries areconducting continual games, which change the power distribution. In this way, poweramong countries transitions constantly.In the analysis of this paper, we shall notice that the power transition is ofsluggishness, that is, the payment rebalance and the power rebalance cannot beachieved at the same time. Moreover, surplus and deficit do not definitely meanpositive or negative power respectively, which has a bearing on specific issues and areas. Last but not least, power transition does not necessarily cause a war, but insteadavoid a war to some degree.