The global savings debate, which Martin Wolf covers in his recent column, fixates on the issue of trade (“The challenge of using excess global savings”, Opinion, May 14), yet corporate cash hoards — and in China, household savings — are the real culprit.
Current accounts now reflect dividend streams and idle profits more than just container ships. These imbalances entrench domestic inequality, which constrains productive investment, leaving corporations with surpluses they recycle into financial assets rather than the real economy.
Japan’s record ¥29.3tn ($193bn) current account surplus in 2024 came entirely from investment income — its primary income surplus exceeded ¥40tn while its net trade balance was negligible. Germany’s €239bn trade surplus that same year was more than half matched by the €149bn in investment returns from foreign assets.
These flows reflect decades of outward investment; tariffs cannot eliminate them, unless they shrink asset stocks or collapse yields.
America sits somewhere in between. For years, US groups’ overseas earnings offset up to half its trade deficit. No longer. Relatively higher-yielding Treasuries and US equities, held by foreign owners abroad, turned the US primary income balance negative in 2024, even as its trade deficit approached $1tn. The bill for safe asset provision has come due.
Crucially, America, China, Germany and Japan share striking similarities despite their varying trade positions. All have household sectors saving more than they spend. All except China have corporate sectors hoarding cash rather than investing productively.
American, German and Japanese corporations invest less domestically than they earn, recycling surpluses into securities, buybacks and offshore affiliates.
Since 2008, even US households have become net savers. Governments must therefore absorb the excess savings, which explains why US Treasuries anchor the global system.
Border measures on goods and services cannot fix these imbalances when financial claims drive — if not greatly accelerate — them. Germany’s dividend machine would continue to hum along, even if its trade surplus vanished today. Nor would slashing US fiscal deficits amount to much unless its corporations faced higher taxes and minimum wages to reduce their surpluses.
China differs — its corporate sector borrows and invests heavily, but household savings dwarf consumption. Remedies lie first with domestic sectoral reforms: stronger social transfers supported by global corporate tax co-operation, higher wages, and demand-side measures that help real investment opportunities beat Treasury yields. The US doesn’t lack for want of productive capacity — and its current account deficit does not reflect that. It just lacks the administrative capacity to tax its globally competitive corporations.
Until structural reforms address these internal imbalances, highly concentrated financial claims — not container loads — will keep the world off-balance.
Ilan Strauss
Honorary Senior Research Fellow, University College London, New York, NY, US
