A trade deficit is the difference between what we buy from the rest of the world and what it buys from us. To that extent rather than buying our goods and services, the rest of the world holds our dollars. These dollars are most often held in the form of US securities (Treasury bonds, etc.). Though trade deficits help finance Uncle Sam’s spending that is not financed with tax revenue, and thus reduce the crowding out of domestic investment by government deficit spending, President Trump doesn’t like them. Our trade deficit in 2024 was $918 billion.
Trade deficits can be reduced by reducing our imports (this is what tariffs tend to do) and/or by increasing our exports. We export many things including food and oil. Tourism and foreign students studying in the US generate about 9% of our export revenue. This has dropped sharply this year as the Trump administration has blocked or discouraged foreign students and badly treated other visitors, denying entry to some. It has suspended entry of new foreign students to Harvard and is threatening to revoke existing student visas at Harvard.
Trump has not only reached into the affairs of Harvard (and those of many other “enemies”), he is also demanding that the US dollar surpluses held by our trading partners be invested as dictated by the Trump administration. This was stated explicitly by US Treasury Secretary Bessent in an interview by Larry Kudlow on Fox Business. https://www.youtube.com/watch?v=IgcmRJpE1pc
It is hard to see much free market here. Gregg Ip nails it in his recent WSJ article “The U.S. Marches Toward State Capitalism With American Characteristics” https://x.com/greg_ip?lang=en
Author: Warren Coats
I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy. I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989. After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017. Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75. I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise. In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.” My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon. I live in National Landing Va 22202
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Warren, I tried to add this comment — the site rejects my password. *** A positive capital account equals a negative current account. That is an identity, it does not establish causality. For causality, consider R Mundell:
  “It is inconceivable that fundamental and enduring changes in the balance of trade can be motivated other than by basic financial transfers. It is true that a shift of domestic expenditure from home to foreign goods will worsen the balance of trade and immediately force accommodating finance, a loss of reserves or a change in the exchange rate… [But] major trade deficits and surpluses are nearly always not only accompanied by but induced by voluntary financial transfers of one kind or another.”   R. Mundell (1992), âTrade Balance Patterns as Global General Equilibriumâ
Btw, I think we can drop the “President” in front of Trump — as he holds the US Constitution in contempt. Also, check 14th Am, Par 3. He should not have been on the ballot. (CO Supreme Court tried to remove him.) *** Like dictators and wannabes almost everywhere, Trump is an enemy of free markets. I have this vision of a world without Trump, Putin or Netanyahu.  FYI, I have attached a review of Sekerke/ Hanke’s Making Money Work. I am sure it will be published somewhere, I hope soon.    Clark
Your comment is there and no pass word is required
Warren Coats 1211 S Eads St. Apt. 2101 Arlington VA 22202 https://wcoats.blog/ https://twitter.com/wcoats2
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