Why the U.S. Always Seems to Run a Trade Deficit—And Why That’s (Usually) OK
Notes from the Unconsidered Trifles File...
By David Ragland
We’re all irrational at times—it’s simply part of being human. Our thoughts and actions often stray from reason due to ignorance, blind adherence to ideology or dogma, cognitive biases, or some mix of all three.
I’ve argued for years that one way to reduce irrational thinking is to stay away from rigid political party affiliation and, in general, to be highly skeptical of the media.
This approach helps me filter out the often unhinged reactions—not just from the media, but also from entrenched political opponents—when it comes to anything Trump-related. And while I vehemently disagree with his persistent scorched-earth approach to everything, I find that the absolute value of many of his administration’s policies are far more rational than some are willing to admit.
That said, his stance on tariffs and trade deficits isn’t one of them.
Even the Wall Street Journal—a publication generally sympathetic to free markets and center-right policy—recently issued a sharply worded editorial dismantling Trump’s latest round of 25% tariffs on Japan and South Korea. The piece exposes the real economic costs of these actions: higher prices for American consumers, reduced competitiveness for U.S. manufacturers, and strained relations with key allies.
More damningly, the WSJ editorial doesn’t frame this as a strategic bargaining tool or temporary leverage—it describes Trump’s tariff policy as ideologically motivated and economically reckless. As they put it bluntly: Trump isn’t using tariffs in service of free trade. He likes tariffs as policy.
The truth is, the U.S. has run trade deficits almost every year since the 1970s—and that’s not only normal, it’s often a sign of strength.
While anyone with a foundational grounding in economics and international trade already understands this, I asked ChatGPT to summarize the key points for why trade deficits are generally sound for a country like the U.S.:
1. The U.S. Dollar Is the World’s Currency
The United States issues the global reserve currency—the dollar. That means countries all over the world need dollars to buy oil, settle debts, and stabilize their economies.
How do they get those dollars? By selling things to the U.S.
A trade deficit is how the U.S. supplies the world with dollars.
In return, foreign countries often reinvest those dollars into U.S. Treasury bonds, stocks, real estate, and other financial assets. It’s a self-reinforcing system.
2. Foreign Investors Love U.S. Assets
When the U.S. buys more than it sells, we’re running a current account deficit.
But we also attract a capital account surplus—because the rest of the world keeps pouring money into our markets.
The world sees the U.S. as a safe place to invest.
That’s why China, Japan, and others hold trillions in U.S. assets. Our legal system, political stability, and innovative economy make America the world’s preferred “bank.”
3. Americans Buy a Lot—and That’s By Design
The U.S. is a consumer-driven economy, with 70% of GDP coming from household spending.
We import goods that are cheaper to produce abroad (clothing, electronics, appliances) and focus on high-value industries like tech, finance, biotech, and aerospace.
Running a trade deficit isn’t a sign of weakness. It’s a sign of specialization.
Rather than making everything, we make what we’re best at—and trade for the rest.
4. A Trade Deficit Is Not National Debt
This one’s important.
A trade deficit means we import more than we export—not that we’re borrowing recklessly.
Unlike a household, a country can run trade deficits for decades if those deficits are matched by productive investment and global trust in its economy.
5. The Flip Side of Global Trade
Here’s a fundamental truth of economics:
One country’s surplus is another’s deficit.
If countries like China, Germany, or Japan want to grow by exporting, someone has to be doing the importing. That someone has largely been the United States.
So... Is a Trade Deficit Ever Bad?
Yes—if it reflects a loss of competitiveness or deindustrialization without a corresponding rise in other sectors (like services or innovation). And yes, long-term imbalances can fuel political tension.
But in most years?
It’s not a crisis. It’s how the global economy functions.
Final Thought:
What looks like a “deficit” in goods is offset by a “surplus” in trust, capital, and influence.
The U.S. is still where the world wants to send its money—even if we’re busy sending dollars abroad to buy phones, cars, and coffee machines.
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