China’s Involution Trap | Michael Pettis on China’s Excess Savings, Industrial Overcapacity, and Exporting of Deflation

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In this episode of Monetary Matters, Jack sits down with Michael Pettis, Senior Fellow at the Carnegie Endowment, to deconstruct the massive economic imbalances between China and the rest of the world.

For decades, the global economy has relied on a specific mechanism: China suppresses domestic consumption to subsidize manufacturing, and the US runs massive deficits to absorb that excess supply. Pettis argues this model has reached its limit. They discuss the concept of "economic involution," why China’s shift from real estate bubbles to manufacturing bubbles is dangerous for Europe and the US, and why the current tariff regimes are merely shifting trade routes rather than solving the problem. If you want to understand why the trade deficit keeps growing despite political intervention, and what a "Great Rebalancing" actually looks like, this is a must-listen. Recorded on November 24, 2025.

Trade Wars Are Class Wars book: 

https://www.amazon.com/Trade-Wars-Are-Class-International/dp/0300244177

Michael Pettis’ Work At Carnegie Endowment For International Peace:

https://carnegieendowment.org/people/michael-pettis?lang=en

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