‘Chimerica’ is now a chimera — and global stability is the victim 

Financial Times UK 8 Sep 2026 Adam Tooze The writer is an FT con trib ut ing editor and writes the Chart book news let ter 

The sum mer of 2026 will be remembered for two great mac roe co nomic themes: the return of the debate around global imbal ances — aka “China shock 2.0” — and the ker fuffle in the world’s largest fin an cial mar ket, that for US Treas ur ies. Both issues are import ant in their own right. Even more telling as to the state of the world, however, may be the increas ingly tenu ous con nec tion between them. Once upon a time, the nexus link ing defi cits and global imbal ances seemed clear. In the early 2000s, the coin cid ence of the free-spend ing and tax-cut ting George W Bush pres id ency with China’s entry into the World Trade Organ iz a tion defined a new era of glob al isa tion. The US gen er ated budget defi cits and issued debt in huge volumes, but not in such quant it ies as to swamp demand. The main buy ers of the new debt issu ance were reserve man agers in sur plus eco nom ies, not ably China, which was happy to engage in an unpre ced en ted build-up of reserves. 

The sys tem was held in place by sys tem atic manip u la tion of the bal ance of pay ments and exchange rates, which slowed yuan appre ci ation against the dol lar. This was a rigged sys tem designed to super charge China’s indus trial devel op ment. But in recon cil ing global imbal ances and ques tions of US Treas ury fund ing, it cre ated what is known as “Chi mer ica”, a form of mac roe co nomic yin and yang. Today, both the Chinese and the US eco nom ies are still char ac ter ised by ser i ous and oppos ite domestic dis equi lib ria. As they must, these spill over into inter na tional imbal ances. China has inad equate domestic demand and unpre ced en ted trade sur pluses. Any adjust ment in prices is still blocked by Beijing’s manip u la tion of the exchange rate. China could allow a revalu ation and whole sale domestic restruc tur ing. But there are ser i ous polit ical obstacles. 

In the US mean while, the polit ical impasse is even deeper. With the rad ic al isa tion of the Repub lican Party, Con gress is dead locked on fiscal issues. After the Bush tax cuts of the early 2000s came the emer gency spend ing of 2008, then the Trump tax cuts of 2017, Covid relief and now the “Big Beau ti ful Bill”. The defi cit tap is stuck per man ently on. The cur rent defi cit of 6 per cent at near-full employ ment is unpre ced en ted. Given the demand being pumped into the US eco nomy by the fed eral gov ern ment, the cor por ate and house hold sec tors are, unsur pris ingly, in sur plus. Cor por ate Amer ica gen er ally runs a tight ship, but Sil icon Val ley is on a debt fuelled bender. This helps to keep the private sec tor sur plus far below the pub lic sec tor defi cit. And, as a res ult, the cur rent account defi cit gapes. Even with tar iffs at levels not seen in dec ades and a net sur plus in energy, the US is run ning huge trade defi cits. The AI boom is suck ing in com puters and chips from Asia, which, thanks to assidu ous lob by ing by Sil icon Val ley, are exempt from tar iffs. 

Mean while, the rest of the traded eco nomy feels the squeeze. So, plus ça change? Cer tainly, the time less ver it ies of mac roe co nomic bal an cing still apply. In the over all account ing of the global eco nomy, China’s sur plus and the US defi cit are each other’s coun ter parts. Decoup ling is an illu sion. But what in the 2000s formed the Chi mer ica syn thesis no longer does. The incre ment to China’s trade sur plus is not prin cip ally with the US. China shock 2.0 is being felt else where, most not ably in Europe. China goes on accu mu lat ing for eign claims. Its net sur pluses are grow ing by $1tn per year. But what is clear is that those for eign cur rency earn ings are no longer, as they were in the 2000s, smoothly flow ing into the US Treas ury mar ket. Even as the US gov ern ment con tin ues to issue new debt and roll an increas- ingly daunt ing stock of liab il it ies, new reserve accu mu la tion has largely stopped. Treas ur ies still find buy ers. But flighty, profit-driven investors play a lar ger and lar ger role. 

What that means is that the safe asset qual ity of US Treas ur ies can no longer be taken for gran ted on either side. In the final analy- sis, even if short-term investors hold the debt in deriv at ives trades, someone is fund ing the hedge funds. Assets and lia- bil it ies match. But Wall Street has to work harder and harder to main tain the bal ance. Our old vis ion of Chi mer ica was too neat. It was a mac roe co nomic just-so story, rather than a genu ine syn thesis of com pat ible policies. It was not destined to last. At least, however, it prom ised sta bil ity. Present-day real it ies offer noth ing of the sort.