The issue of trade imbalances can be viewed from a number of perspectives, but each of these perspectives reaches a similar conclusion. The changes that would have to be made to solve the imbalances are not marginal changes but major microeconomic structural changes. They are in fact so major that one can reasonably argue that what is required is economically or politically impossible. Yet they have to be made. They either will be made as a matter of public policy or they will be forced by the market. However, if forced by the market, the changes will have to be made in the midst of an economic crisis, the only unknown of which is its timing.

This unfortunate conclusion flows from the fact that the imbalances in today's trading systems are not minor but major. More important, these imbalances are such that they become larger and harder to correct the longer they are allowed to exist. In this case, to postpone the problem is to have a much larger problem.

Current trading problems are also not going to be solved with macroeconomic tinkering. Changes in macroeconomic policies are necessary, but more fundamental microeconomic structural changes will be necessary to put the world's trading system back on an equilibrium path.

A black hole

The American trade deficit is rapidly becoming the economic equivalent of the astronomer's black hole. Everyone's economy is adjusting to it and the larger it becomes and the longer it lasts, the harder it is going to be for anyone to escape from it.