Rebalancing the global economy is Donald Trump’s defining cause
Trump thinks Americans consume too much. He has a point. He will not like the remedy, however
China should produce less and consume more, the president thinks; meanwhile, America should produce more by reindustrialising.
There is a final logical step to this equation: America should also consume less.
In the third quarter of 2024 America paid more to owners of its assets than it earned on foreign investments for the first time this century, in part because of higher interest rates.
This is the grain of truth to Mr Trump’s claim that trade deficits transfer wealth overseas (the president also applies this logic, nonsensically, to bilateral trade with every foreign country).
If America’s thirst for consumption cannot go on for ever, how long can it last?
Economists are very good at saying that something cannot go on forever, but not so good at saying when it will stop.
https://englundmacro.blogspot.com/2025/06/steins-law-if-something-cannot-go-on.html
There are reasons to think that things may now be different
This Time Is Different.
Nu är räntan stigande och dollarn fallande.
https://englundmacro.blogspot.com/2025/05/det-ar-latt-att-vara-efterklok.html
What would a current-account crisis look like? The $62trn-worth of American capital owned by foreigners
A loss of faith in America’s ability to deliver the necessary real returns for foreign investors could cause a large depreciation in its asset prices, which have reached eye-watering highs.
The country’s bonds, properties and stocks, as well as the dollar itself, would come under intense selling pressure.
There is one obvious lever to pull: cutting the enormous budget deficit of the federal government.
Unfortunately, the political reality is that no fiscal consolidation is in the offing. Mr Trump’s tax bill, which is making its way through Congress, will prolong enormous deficits.
The Economist 5 June 2025
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