Edward Conard

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Growing Fiscal Deficits Portend Increasing Trade Deficits

Noting the growing trade deficit in non-petroleum goods and services, the WSJ’s Josh Zumbrun wisely reminds us that, with a glut of offshore savings, trade deficits are a byproduct of growing fiscal deficit–a point few people surprisingly seem to understand:

“One major reason the U.S. didn’t shrink its trade deficit was simultaneous fiscal deficits.

When government borrowing rises, it needs money from somewhere. Consumers could dramatically ramp up their saving and purchase Treasurys—which would dent consumption—but in practice did not. That leaves foreign nations with financial surpluses as the biggest source of funds buying up U.S. debt—nations that save a lot [are able to] export more [goods and services] than they import.

Large tax cuts and spending increases enacted by Congress and the Trump administration are poised to push fiscal deficits above $1 trillion in coming years. That implies trade deficits will grow.”

Growing Fiscal Deficits Portend Increasing Trade Deficits

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