## Unbalanced Trade 2.0

_IMF Working Papers, September 26, 2025_

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**Canonical URL:** [Unbalanced Trade 2.0](https://www.imf.org/en/publications/wp/issues/2025/09/26/unbalanced-trade-2-570525)

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## Bibliographic details
- Authors: Alejandro Cuñat, Robert Zymek
- Published: September 26, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229026482.001

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### Summary
- Do trade imbalances boost incomes in surplus economies at the expense of deficit economies? The paper answers "yes" for an important subclass of quantitative trade models.
- The result is driven by scale economies concentrated in the traded sector: a rise in net exports causes the traded sector to expand in surplus economies, raising productivity and real income; deficit economies experience a decline in productivity and income.
- Under plausible calibrations of the strength and incidence of scale economies, observed trade imbalances cause a sizeable redistribution of the gains from trade towards surplus economies.
- If imbalances are modeled as the outcome of steady-state equilibrium in international asset markets, major deficit economies may prefer to correct their traded-sector underproduction by moving to financial autarky.
- Financial autarky reduces global welfare and is generally not the optimal policy to bolster the traded sector in the presence of scale economies.

### Mechanism and key dynamics
- Scale economies concentrated in the traded sector:
  - Expansion of the traded sector increases productivity in surplus economies.
  - Contraction of the traded sector decreases productivity in deficit economies.
- Net exports changes:
  - A rise in net exports -> traded-sector expansion (surplus economies) -> higher productivity and real income.
  - A decline in net exports -> traded-sector contraction (deficit economies) -> lower productivity and real income.
- International asset markets and steady-state equilibria:
  - When imbalances reflect steady-state asset positions, deficit economies face a policy choice to address traded-sector underproduction.

### Findings and quantitative characterization
- Observed trade imbalances, under plausible calibrations of the strength and incidence of scale economies, cause a sizeable redistribution of the gains from trade towards surplus economies.
- Financial autarky:
  - Major deficit economies may prefer financial autarky to correct traded-sector underproduction.
  - However, financial autarky reduces global welfare and is typically not the optimal policy to support the traded sector when scale economies are present.

### Policy implications and recommendations
- Policymakers in deficit economies should recognize that correcting traded-sector underproduction via financial autarky can be welfare-reducing globally and is generally suboptimal.
- Policies aimed at bolstering the traded sector need to account for scale economies and cross-country spillovers to avoid exacerbating redistribution of gains from trade toward surplus economies.

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_Source: https://www.imf.org/en/publications/wp/issues/2025/09/26/unbalanced-trade-2-570525_