Why US has trade deficits? A 20 trillion-dollar question.

While we don’t really agree with US president taking on the world with his tariff wars, we do agree with him on one statement, US is losing out to all their trading partners with massive deficits.

From China, which is a net exporter to India which is a net importer, US manages to have a trade deficit with almost all countries it trades with.

Credit: HowMuch.net

A quick look into the map and we could see that the world is practically making a living off US imports. Even Russians make  profit of 9.5 Million dollars in their trade with US. So the question as to why US is having this deficit has to be deeper than alleged dumping of steel and aluminium.

The fact is that while rest of the world earns dollars, US merely prints it. 

It started with Europe’s recovery after second world war with US assistance. Its started with Marshall Plan. Europe in ruins, Reichsmark obsolete and British pound loosing it relevance Americans insisted on moving away from national gold reserves as the way to measure one national currency against another. With exception to the soviet bloc, the world accepted Dollar as the trading standard. With the collapse of Soviet Union and various bilateral trade treaties with it the dollar dominance was complete. With a small exception when Euro challenged the hegemony, Dollar have had an uninterrupted run.

With the Dollar literally becoming the gold standard of trade, US has been overspending ever since. All it does is to take more public debt, print more dollars and flood the market with them. The nonsustaining debt levels of US have already crossed twenty Trillion dollars (estimated). As of late 2016 the debt was already 106% of US’ GDP.

US’s tryst with its debt makes it imperative that the nation as well its stake holders constantly engage in buying behavior that is certain to cost it back in terms of trade deficits. For example with 795 cars per 100 people in US (as compared to 154 in China and 151 in India), the demand for automobile grade steel in US cannot be sustained by its own production. Also the fact that most of these cars are indirectly subsidized by its government with high dollar inflows ensure that most of these vehicles are non- commercial, so they do not generate economic activity that is commensurate to trade of imports leading to a trade deficit.

As a matter of fact the US debt has created a debt balloon that is kept in place only by its sovereign guarantee without any real collateral.

Any and all policy decision that induce reduction in US’influence or international standing must be treated like a pinch to this balloon which could potentially collapse the capitalist economy of the world. The fact that Trump, with his trade wars, is pitching his tent on top of this US debt should be a fair warning to all. May be Indian housewives are showing the way to the world by saving in real gold.

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