America’s current trade deficit is almost incomprehensible in size, and is largely a misunderstood economic concept. However, here are some basic facts to consider:
- Trade deficits are not a simple accounting convention; they are real debt that must be paid back
- Trade deficits must be financed, and we finance our trade deficit by borrowing from our trading partners.
- The big irony is that we borrow money from our trading partners to finance our trade deficit so that we can buy more of their exports.
- When the value for the dollar is increased, our exports become less competitive and imports cheaper.
- Contrary to popular belief, the trade deficit debt must be paid back, and this will be increasingly hard to do with growing federal deficits.
- If we get crosswise with China, they may decide to not loan us any more money and cash in their US securities.
Read the rest of Collins’ piece on Industry Week’s newsite.