Some links about the cause of trade imbalances and their connection to income inequality around the world.
Michael Pettis
The real problem is that, over the past two decades, it has become increasingly difficult for the world to fix its massive trade imbalances; the very mechanisms that created them also make them harder to absorb. That is because trade surpluses and deficits are mainly the result of domestic savings surpluses and deficits, which are themselves a result of domestic income inequality. Until such inequality is substantially reversed, high-saving countries will continue to use trade as a way to pass the effects of their distortions onto other nations, such as the United States. This makes global trade conflict nearly inevitable-regardless of who sits in the Oval Office. For the United States, the only way out may be reconsidering how willing it is to absorb everyone else's excesses.
For a video interview with Hidden Forces's Demetri Kofinas see Wealth Inequality in Global Trade & Finance.
For an opposing view (albeit by someone favoring the investor class) see A Misguided and Harmful View of Trade Deficits.
Book review: Trade Wars Are Class Wars
"Trade war is often presented as a war between countries. It is not:
it is a conflict mainly between bankers and owners of financial assets
on one side and ordinary households on the other - between
the very rich and everyone else."
...
"For decades," note the authors, "real borrowing costs have been
below long-term forecasts of real economic growth and remain around
zero." This combination of extraordinarily low real interest rates
with weak global demand and low inflation is a prime symptom of
underconsumption or, in modern parlance, "a savings glut". The
explanation given by Klein, economics commentator at Barron's,
and Pettis, professor of finance at Peking University's Guanghua
School of Management, is that income has been shifted to wealthy
people who do not spend what they earn.
...
"As of 2018, Chinese households still consume less than 40 per
cent of Chinese output - a lower ratio than in every other major
economy in the world, by far," the authors write. This is due to a
host of mechanisms - high household savings, low interest rates,
lack of rights of rural migrants in cities, regressive taxation,
weak social safety nets and the failure of state-owned companies
to pay dividends - all designed to shift income from workers and
retirees to companies and the state.
A discussion between Adam Tooze, Michael Pettis, and Matthew Klein
Our argument is fairly straightforward: trade cost and trade conflict
in the modern era don't reflect differences in the cost of production;
what they reflect is a difference in savings imbalances, primarily
driven by the distortions in the distribution of income. We argue
that the reason we have trade wars is because we have persistent
imbalances, and the reason we have persistent trade imbalances is
because around the world, income is distributed in such a way that
workers and middle class households cannot consume enough of what
they produce.
...
Periods of significant income inequality in the US included the 1830s,
the 1860s, the period before World War One, and the 1920s. In each case,
often in a very chaotic way, the US took necessary political steps to
redistribute income. I suspect that maybe we're going through that
process again. We've reached the limits of our ability to absorb rising
income inequality. At least that's what I hope.
...
Video
The rich will benefit if we create sustainable demand with less household borrowing
As Eccles said so clearly, beyond a point, inequality weakens an economy by driving policymakers into a ruinous choice between high unemployment or ever-rising debt. The paper on the savings glut makes two points. First, rising inequality in the US has resulted in a large increase in the savings of the top 1 per cent of the income distribution, not matched by a rise in investment. Instead, the investment rate has been falling, despite declining real interest rates. The rising savings surplus of the rich has been matched by the rising dissaving, or consumption above income, of the bottom 90 per cent of the income distribution.