Why the U.S. Has Trade Deficits (And Why That Might Be by Design)

Why the U.S. Has Trade Deficits (And Why That Might Be by Design)

There’s a lot of hand-wringing about the United States’ persistent trade deficits. Politicians call it a problem. Economists debate it. And the public often hears it framed as a sign of weakness. But here’s a different perspective: maybe trade deficits aren’t a bug of the U.S. economic system—they’re a feature.

The Global Power of the U.S. Dollar

At the heart of this story is the U.S. dollar. For decades, it’s been the de facto global currency. Whether you're buying oil, investing in stocks, or settling international debts, chances are you're dealing in dollars. This gives the U.S. an enormous amount of financial power—and with it, some unusual consequences.

One of those consequences? The ability to print money—trillions of dollars' worth—and not suffer hyperinflation. Why? Because the world absorbs those dollars. Global trade, central banks, sovereign wealth funds, and corporations across the globe all demand dollars. When the U.S. prints more of them, a large portion doesn’t even stay in the U.S.—it gets soaked up abroad.

Printing Money Without Paying the Price

Most countries can’t get away with aggressive money printing. It would tank their currency, crash investor confidence, and lead to skyrocketing inflation. But the U.S. can. Because of the dollar’s privileged position, it can print and spend money freely—and other countries accept that money in exchange for real goods and services.

Think about that for a moment: the U.S. prints money, and in return, it gets cars from Japan, electronics from South Korea, textiles from Bangladesh, and oil from the Middle East. The dollars flow out, and products flow in. That’s a trade deficit in action. But it's also a sign of the dollar's overwhelming dominance.

You Can't Have It Both Ways

So here’s the dilemma: if the U.S. wants to keep the dollar as the world’s reserve currency and maintain loose monetary policy, it will inevitably run trade deficits. There’s no way around it. Dollars leave the country, goods and services flow in, and the U.S. consumes more than it produces. That’s the price of dollar dominance.

But what if the world wanted to fix this imbalance?

A Global Currency Alternative?

One option would be for major economies—say, the G7 plus BRICS—to come together and create a genuine global currency. It could be a basket of all major currencies, perhaps governed by an international institution. This would level the playing field and remove the "exorbitant privilege" the U.S. enjoys today.

Of course, don’t expect this to happen easily. Powerful interests in the U.S.—and politicians like Donald Trump—would be hyper-opposed to any such move. The current system gives the U.S. extraordinary leverage. Why would it willingly give that up?

The Bottom Line

If the U.S. wants to keep the dollar at the center of global finance and maintain its habit of aggressive money printing, then trade deficits are the inevitable result. You can’t have your cake and eat it too.

So the next time you hear someone complaining about the trade deficit, remember: it’s not just a problem—it’s also a choice.