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

Trump’s Trade War

Trump’s Trade War
Peace For Taiwan Is Possible

Trump’s Trade War

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.

Trump’s Trade War

Trump’s Trade War
Peace For Taiwan Is Possible

Trump’s Trade War
Peace For Taiwan Is Possible

Trump’s Trade War

The Mighty Dollar

The starting point is the dollar’s status as a global reserve currency and international monetary standard, and the US current account deficit is the only mechanism through which the global supply of dollars can be increased. This is why a global economic boom often coincides with a higher US current account deficit, while global recessions often see the US current account moving in the opposite direction............ the expected surge in Chinese imports would almost close up America’s entire current account deficit and this would lead to a global dollar shortage. As a result, market forces would likely drive up the dollar to such a level where US exports to other parts of the world would be reduced, thus “re-creating” a trade or current account deficit. ...... In the end, either higher short rates or a stronger US dollar or both would act to slow down the US economy and ensure that America’s trade balance is more or less unchanged. ...... a Sino-US trade deal could simply amount to a zero-sum game in the short term: a gain for the US, a loss for the rest of the world, and indifference for China ..... a net efficiency loss in the world supply chains. ........ To avert or minimise the adverse impact of a China-US trade deal on the rest of the world economy, the Sino-US trade deal should focus on Beijing’s protective trade and investment policies rather than bilateral trade imbalance. The China-US trade imbalance is the natural result of global supply-chain evolution, and eliminating this imbalance is too disruptive for every country involved. ....... making sure that Beijing plays by the rules and levels off the playing field for foreign businesses and suppliers would represent a net gain for the world economy, benefiting all.

A US-China trade deal won’t be a win for global markets if Beijing shifts its trade surplus to other countries

A little good news could go a long way. If the US and China are shrewd enough, between them they can clinch recovery with a trade compromise that convinces investors that the future remains bright.

The world is taking leave of its senses and falling down the rabbit hole of a deepening global trade war, economic shocks and political instability. The post-war world order is breaking down, multilateralism is giving way to national self-interest and the political forums for peaceful debate are failing.......It’s time for someone to step forward and show stronger leadership before the world sinks back to where the 2008 financial crisis left off. Right now, the world is in self-harm mode and deeply vulnerable.