What Trump does not get about the US trade deficit … it’s a privilege, not a problem!

For most nations a sustained trade deficit is a problem, as it means that more money leaves the country than in coming in, meaning the country/society needs to borrow more and more money – until it may eventually be bankrupt. That happened e.g. to Greece during the EURO debt crisis of 2010-2012 or repeatedly to Argentina over the past decades.

However, there is one country for which the situation is different, and which almost inevitably NEEDS to run a trade deficit. And that country is the one printing the world’s reserve currency – the USA. Being the only one who can print US Dollars is an “exorbitant privilege”, as it means the USA can almost freely create the one currency that everybody else wants – and needs, as it is used for most of global trade (e.g. almost all the oil in the world is traded in US Dollar). As the world population and world economy grow, so does the demand and need for US Dollars. Also, the central banks of the world, preparing for future crises, stash US Dollars. Thus, as the world wants and needs more US Dollars, the only country that can supply them – the USA – needs to print and distribute them. Serious estimates are that the world needs between 500 and 800 billion US Dollars per year to facilitate additional trade and currency reserves – and this is the amount that the USA can have as trade deficit per year.

Trump thinks trade deficits are bad (as he thinks of private businesses which indeed are in trouble is they consistently spend more than they earn). However, for the USA a trade deficit means that millions of Chinese, Europeans and Japanese are working hard to produce goods that they then send to the USA to received US Dollars for them – essentially green snippets of paper that the USA can produce almost for free and almost unlimited (as long as the rest of the world is willing to take them.

As Trumps tries to reduce the trade deficit with tariffs and other measures he is destined to fail, as the world economy “need” US Dollars as its lubricant – and that’s not bad for the USA but an exorbitant privilege (that is wrested from the UK in the 1940ies, as the US Dollar replaced the Pound Sterling as the world’s leading currency). As Europe we may actually hope, that Trump succeeds, as the world would the need another world currency to trade in – and the EURO is the second most used currency worldwide, hence stands to win in importance if Trumps really is stupid enough to undermine the US Dollar’s dominant role.