Foreign trade deficits are like having money in the bank for the United States. We don’t buy anything from China or any other country. We trade our strong dollars (IOUs) for their products – that is why they call it trade.
American dollars are just IOUs backed by our laws and tremendous economy that gives them their value. We pay no interest on these dollar IOUs. There are trillions of American trade deficit dollar IOUs spread all over the world waiting to be redeemed for American-made products.
When foreigners trade their American dollar IOUs, it keeps our factories busy fulfilling the orders, creating jobs and more business that keeps our country prosperous.
Also, by buying our Treasury bonds the foreigners help us finance our federal debt. The large foreign trade deficit helps keep the interest rates on U.S. federal debt lower when the foreigners invest their vast trade deficit holdings in dollar IOUs they hold, in U.S. Treasury bonds.
President Trump is trying to restrict foreign trade with his tariffs, which will slow down the world economy and eventually lead to a depression just like President Herbert Hoover’s in the 1930s. We need some tariffs to keep our basic industries like steel, aluminum, etc., competitive but that’s about all.
Trump is trying to bring factories back to the U.S., but what we really need is to keep the factories we already have here humming with orders from our foreign trading partners. Bringing factories back home that become noncompetitive when they cannot keep up with the cheaper foreign labor environments will be disastrous when they sit idle.
Donald Louis Hamilton