Why Does the U.S. Always Run a Trade Deficit?

Thomas Klitgaard The obvious answer to the question of why the United States runs a trade deficit is that its export sales have not kept up with its demand for imports. A less obvious answer is that the imbalance reflects a macroeconomic phenomenon. Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. Reducing the trade imbalance therefore requires both more exports relative to imports and a narrowing of the gap between saving and investment spending. Grounded by Accounting To give some intuition for why the trade deficit is equal to the gap between saving and investment spending, assume the U.S. economy is closed to the rest of the world. That is, there are no imports or exports. Spending is either on the consumption of goods and services or investment spending on equipment, structures, and intellectual property products. Income is allocated to either consu ... Read full article.