The IMF doesn’t share U.S. view that China’s massive trade surpluses are hurting the world, and that tension is likely to grow
4 min
Eighty years ago world leaders meeting in Bretton Woods, N.H., created the International Monetary Fund to prevent the sorts of economic imbalances that had brought on the Great Depression.
Today, imbalances once again threaten global harmony. China’s massive trade surplus is fuelling a backlash. The U.S. attributes those surpluses to China holding down consumption while subsidising manufacturing and exports, inflicting collateral damage on its trading partners. And it would like the IMF to say so.
The IMF, though, has steered a more neutral path. It has prodded Beijing to change its economic model while playing down any harm from that model for the world.
Decades ago, U.S. leaders thought bringing China into the postwar economic institutions such as the IMF and World Trade Organization would make Beijing more market-oriented and the world more stable. They now think the opposite. China has doubled down on an authoritarian, state-driven economic model that many in the West see as incompatible with their own.
The IMF, the world’s most influential international economic institution, may find itself torn between irreconcilable visions of the global economy, especially if former President Donald Trump is re-elected next month.
Trump has prioritised reducing the trade deficit, especially with China, through tariffs, an approach the IMF has criticised. Many of his advisers are deeply suspicious of both Beijing and international institutions. Project 2025, an agenda for a second Trump term that includes many Trump advisers as authors, has suggested the U.S. should leave the IMF, though there is no sign Trump agrees.
The U.S. has been upset about the growth in China’s trade surplus since it joined the World Trade Organization in 2001, wiping out U.S. factory jobs in what became known as the China shock .
China’s surpluses have since shrunk as a share of its gross domestic product. But because China’s economy is now so large, that surplus has grown as share of world GDP, to 0.7%. Other countries are alarmed at a growing flood of cheap manufacturing imports, dubbed “China Shock 2.0 .”
Jake Sullivan , President Biden’s national security adviser, said at the Brookings Institution Wednesday that China “is producing far more than domestic demand, dumping excess onto global markets at artificially low prices, driving manufacturers around the world out of business, and creating a chokehold on supply chains.”
Treasury Undersecretary Jay Shambaugh told me at a panel organised by the Atlantic Council two weeks ago that China is “already 30% of global manufacturing. You can’t grow at a massive rate when you start from 30% of the world without displacing not just us, but lots of countries.”
Pointing out such tensions is part of the IMF’s job, Shambaugh said at the event. While the IMF has said China’s industrial policies may be hurting its trading partners, “I would like to see them pay more attention…to the aggregate external imbalance.”
The IMF’s architects believed a breakdown in economic cooperation contributed to the Depression. Countries such as the U.S. that ran large trade surpluses felt no pressure to help those with deficits, like Britain. Depressed countries sought to limit imports and boost exports by devaluing their currencies or imposing tariffs, in effect seeking to export their unemployment.
To end such “beggar-thy-neighbour” policies, British economist John Maynard Keynes proposed that trade be conducted through a global bank and currency that would prevent big deficits and surpluses. Instead, at Bretton Woods, delegates agreed to peg their currencies to the dollar with the IMF overseeing periodic revaluations.
By the 1970s, inflation and growing trade deficits caused fixed exchange rates to collapse. Cross-border capital flows soared, enabling poor countries to borrow from western banks and investors. When they defaulted, the IMF had a new mission: helping them restructure their debts, usually on the condition of strict budget austerity. IMF, a popular joke ran, stood for “It’s Mostly Fiscal.”
Even today, while the IMF does still monitor trade deficits and surpluses, it rarely attributes those to cross-border influences, focusing instead on fiscal and other domestic factors.
In a blog post last month, IMF staff investigated the U.S. deficit and Chinese surplus and found little connection.
The U.S. deficit reflected strong government and household spending, while China’s surplus resulted from slumping property markets and domestic confidence. They “are mostly homegrown,” they wrote. In an implicit rebuke to the U.S., they wrote, “Worries that China’s external surpluses result from industrial policies reflect an incomplete view.”
This benign view of Chinese surpluses has drawn criticism. Brad Setser , a former U.S. Treasury official now at the Council on Foreign Relations, said the IMF has relied on data that understates the surplus.
Setser also raps the IMF’s advice to Beijing to let interest rates and the exchange rate fall while tightening fiscal policy—that is, raising taxes or cutting spending. That, he said, will weaken imports, boost exports and thus widen the trade surplus.
“Their analysis is all about how bad the fiscal situation is, with no real analysis of the balance of payments position,” Setser said.
Pierre-Olivier Gourinchas , the IMF’s chief economist, disagreed. He noted the IMF has consistently urged China to boost household consumption such as by strengthening the social safety net and shifting more of the tax burden from the high-consuming poor to the high-saving rich. He also noted that the IMF has argued for fiscal stimulus now and consolidation later.
Does the IMF’s opinion make a difference? Most countries—the big ones especially—will never need to borrow from the IMF and can thus ignore its advice. The IMF has long urged the U.S. to rein in its budget deficit, noting this contributes to its trade deficit, and the U.S. has just as long ignored it.
And yet when the IMF speaks, it does so with an authority and credibility that no private analyst or individual country commands.
China’s approach to boosting exports is “killing jobs elsewhere, and that’s something the IMF should call out,” said Martin Mühleisen , a former senior IMF official now at The Atlantic Council. “China doesn’t want bad publicity from the IMF, in part because the criticism would resonate in many countries.”
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
