China's Surge and US Deficits Top G7 Imbalance Debate

France is using its G7 presidency to put global economic imbalances on the group's agenda, a report showed. The French move cites the risk from China's export surge and the chronic U.S. trade deficit. Europe's weak investment is also a concern.

The G7 last attempted coordinated action on imbalances in the 1980s with the Plaza and Louvre accords. Those agreements involved joint currency intervention. The current situation differs: China is not a G7 member and the U.S. deficit is larger relative to GDP.

For currency markets, the G7 debate is a potential catalyst. The communiqué will be watched for any mention of the U.S. deficit or China's surplus. Traders will also watch the U.S. Treasury's semiannual currency report, due around the time of the May finance ministers' meeting, which could flag a trading partner for currency manipulation.

The history of the Plaza accord shows that coordinated signals can move currencies sharply. The May meeting will tell whether the current rhetoric is more than talk.

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