Bilateral trade balances have become a growing focus of attention, as some policymakers are concerned that their large and growing size may reflect asymmetric obstacles to trade. A close examination of the drivers of bilateral trade balances, however, reveals that macroeconomic factors, rather than bilateral tariffs, have been the main drivers of growing imbalances. While tariffs have played a modest role in the evolution of bilateral balances, declines in tariffs have lifted productivity by allowing a greater international division of labor, including through participation in global value chains. A sharp increase in tariffs would therefore create significant spillovers, leaving the global economy worse off. From a policy perspective, our analysis suggests that the discussion of external imbalances is rightly focused on aggregate trade balances and the macroeconomic factors that drive them. Targeting particular bilateral trade balances with bilateral tariffs will likely mostly lead to trade diversion, leaving the aggregate trade balance unchanged. Instead, further multilateral reductions in trade barriers would benefit trade and, over the longer term, macroeconomic outcomes.