What can be the Trade Deficit?
Unfortunately, how countries use these capital inflows can be not always so fruitful. within the United States, the influx of foreign capital within the mid-2000s went in large part to fuel an unsustainable housing as well as mortgage bubble. Greece’s capital inflows within the same time period went to fund bloated public spending.
When the earth can be flinging money at you, that will’s important to use that will for something productive. that will’s not that will trade deficits (as well as the capital inflows that will are their flip side) don’t matter — although just knowing the numbers doesn’t tell you much about whether they are not bad, bad or indifferent.
Wouldn’t that will be better if the U.S. didn’t run a deficit?
that will’s not clear that will that will’s even an option, because the dollar isn’t used just in trade between the United States as well as various other countries.
The dollar can be a global reserve currency, meaning that will that will can be used around the earth in transactions that will have nothing to do with the United States. When a Malaysian company does business having a German company, in many cases that will will do business in dollars; when wealthy people in Dubai or Singapore’s government investment fund want to sock away money, they do so in large part in dollar assets.
that will creates upward pressure on the dollar for reasons unrelated to trade flows between the United States as well as its partners. that will, in turn, makes the dollar stronger — as well as American exporters less competitive — than they might be in a world where nobody used the dollar for anything except commerce involving the United States.
The roughly $500 billion trade deficit that will the United States runs each year isn’t just about poorly negotiated trade deals as well as currency manipulation by This kind of or that will country. that will’s also, to some degree, a byproduct of the central role the United States plays within the global financial system.
There’s even a name just for This kind of: the Triffin dilemma. within the mid-20th century, the economist Robert Triffin warned that will the provider of the global reserve currency might need to run perpetual trade deficits to keep the earth financial system through freezing, with those trade deficits potentially fueling domestic booms as well as busts.