This is not good news. Global imbalances are further growing:

The large U.S. trade deficit in goods peaked in 2008, but has declined sharply thus far in 2009 as the global recession significantly reduced demand for U.S. exports and imports alike. But one constant remains: China’s rising share of the non-oil goods trade deficit, which recently peaked at 83% of the total U.S. non-oil goods trade deficit (see Chart). This deficit is dominated by the U.S. trade deficit in manufactured goods. In short, aside from oil imports, the U.S. trade deficit is dominated by our import of Chinese manufactured goods.

Beginning in August 2008, monthly U.S. non-oil exports fell 25% ($27 billion), and imports fell 33% ($47 billion), so the monthly trade deficit declined 53% ($20 billion). China’s trade with the United States was the great exception: both imports and exports from China fell at a slower rate, so the monthly non-oil trade deficit with China fell much less (29% or $7 billion). As a result, China’s share of this deficit has surged from 69% in 2008 to 83% through May 2009.

China could do much to reduce this imbalance by revaluing its highly undervalued currency, giving up energy subsidies for exports, and forgoing the dumping of exports in the U.S. markets. China’s huge stimulus program has kept its economy growing at an 8% rate this year, and is able to consume many more U.S. exports.

Given the fact that these unbalances are the root cause of the current financial crisis (however, what policies did cause these unbalances is an important question too), it’s cleart that a global rebalancing will not only prevent a new crisis, but will make it possible to solve our current woes. In the global economy rebalances China could become a market for our goods, so that we can export ourselves out of our economic problems. This also means of course that Europe should do something about it’s (relative) lack of competitiveness, in order to capture the newly created consumer markets. In fact it’s all quite simple: more consumption in China, more savings in the U.S., and more cost cutting (or cutting business taxes and red tape) in Europe. As far as I can tell, China is doing its best (but its still keeping its currency undervalued), the U.S. is doing the opposite of what it is supposed to be doing, and Europe…no comment. So is it possible we are heading for a next phase in the financial crisis instead of an improvement?

(H/T: Geert Noels)