Prima facie, Europe’s large trade surplus while US’s large trade deficit might appear to create global imbalances, and hence it is important to look beyond the headline numbers
FinTech BizNews Service
Mumbai, October 29, 2025: The State Bank of India’s Economic Research Department has come out with a special Research Report on the global trade. The report has been authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India:
The discourse on the asymmetries of global trade as witnessed in the enduring tension between surpluses and deficits of EU and the USA invites a deeper interrogation “to look under the hood” and discern the structural, institutional and policy architectures that truly drive these imbalances...US trade deficit has deteriorated post tariff imposition.
The China, European Union (EU) and the United States have been the 3 largest global players within international trade since 2004 when China surpassed Japan... In 2024, the US had the largest deficit, while China had the largest surplus... Under the aegis of G30 40th Annual International Banking Seminar 2025 Christine Lagarde, President of the European Central Bank gave explanation regarding US accusations over EU trade surplus
❑ Prima facie, Europe’s large trade surplus while US’s large trade deficit might appear to create global imbalances, and hence it is important to look beyond the headline numbers referred to as “looking under the hood”. It consists of 5 arguments:
✓ Argument # 1: EU’s declining Current Account Surplus: EU has witnessed a declining trend in merchandise trade surplus from $347.9 Bn to $273.1 Bn and hence Europe does not remain a key source of global imbalance
✓ Argument # 2: EU’s Service Trade Deficit with US: While EU has trade surplus in goods with US it has huge deficit in services trade
✓ Argument # 3: EU’s Trade Surplus with UK and USA : In 2025 ( Apr- Aug), EU’s surplus with UK has been at €78.1 billion while with US trade surplus stands at €65.8 billion. Furthermore, EU’s trade surplus with USA has been on a declining trend while it is rising with UK
✓ Argument # 4: Why EU has a surplus? In 2022, among the foreign-controlled enterprises whose ultimate control was located outside the EU, the highest share of the workforce in these activities was almost exclusively accounted for by enterprises that were ultimately controlled by units from the US
✓ Argument # 5: EU’s Fiscal Deficit contributing to rebalance
❑ In terms of Nash equilibrium, the present situation reflects zero- sum nature of trade resulting in Pareto-inferior outcomes....However, trade is a repeated game which can sustain a cooperative equilibrium
❑ Prima facie US Trade deficit declined post tariff...however...When we look under the hood...only deficit with Switzerland declined by $53 Billion...US Imports Declined Significantly from Switzerland...leading to Trade Surplus in Apr, May & June
Backdrop
The US President has repeatedly emphasized the European Union (EU) of unfair trading practices because it has run a persistent trade surplus when it comes to the exchange of goods
❑ European Council data shows total trade between the EU and US amounted to €1.68 trillion ($1.97 trillion) in 2024 but while the EU ran a trade surplus in goods, it recorded a deficit in services with the US. When both goods and services were taken into account, the EU had a surplus of around €50 billion in 2024
