Persistent trade deficits are an inescapable aspect of issuing the global reserve currency

The US is not like others. 

(RE: Yes, and it is different this time.)

Our chief exports are dollars, which the rest of the world uses for central bank reserves, investing in our stock market and trade settlements. 

This system, while it has flaws, keeps the global economy moving with much less friction than was historically normal.

The core problem is that many people (including the president, apparently) accept a fundamentally wrong idea that trade deficits are bad.

My discussion of that in last week’s letter generated a lot of feedback. Many readers disagreed with me but not for the same reasons.


Do Trade Deficits Matter? John Mauldin March 28, 2025

https://www.mauldineconomics.com/frontlinethoughts/do-trade-deficits-matter


I’m often told our trade deficit is “unsustainable.” Seriously? 

Yes, we import a lot of manufactured goods, too, the dollar value of which exceeds our exports. But there is an important qualitative difference. 

Our imports are generally inexpensive, low-tech goods while our exports are more sophisticated technologies and equipment. 

That’s exactly how “comparative advantage” works.

We all—both business and government—got overly excited in the early 2000s about opening trade with China and forgot to plan for the inevitable side effects. 

This wreaked havoc on former factory towns.

But it’s also wrong to blame the trade deficit. 

“Even if US-manufactured exports increased enough to close the trade deficit—an extremely unlikely event—and if employment grew proportionately, 

our manufacturing-workforce share would climb only from 8% to 9%. Not exactly transformational.”



As of Q4 2024, overseas investors owned $16.5 trillion, or 18%, of US equities

—the highest share on record, according to Federal Reserve data. 

That's up from 8% in 2000 and just 2% in the 1950s.

John Mauldin 4 April 2025

https://www.mauldineconomics.com/frontlinethoughts/the-tariff-recession


Tillbaka till Rolfs länktips 6 april 2025

https://englundmacro.blogspot.com/2025/04/rolfs-lanktips-6-april-2025.html





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