When American citizens buy more foreign goods (import) than we sell to foreigners (exports), we have to transfer part of our national wealth to foreigners. The amount we have to transfer to foreigners is called the trade deficit.
Think of it like a big, international credit card. When we buy more from the world than we sell it, the world takes our dollar bills and has to invest them. That means they are earning interest, dividends and rents and, over time, own an ever-expanding piece of the nation. This includes our real estate, our corporations, our bonds, our national artworks, and more.
The trade deficit represents a much bigger threat to our long-term domestic tranquility than the budget deficit, which is the national debt the government is incurring by spending more than it makes. The national debt is certainly a problem, but nowhere near as big a concern as the trade deficit to those who understand the implications of global economics.
In response to a question submitted by a reader, I wrote a five-part essay detailing my thoughts on how to solve the trade deficit and how the story is much more about the rise of the knowledge worker than it is about cheap foreign labor.
- How to Solve the Trade Deficit Part I: Details how 2/3rds of the trade deficit could be solved by fixing a single import.
- How to Solve the Trade Deficit Part II: Explains the specific manufacturing tax breaks and other incentives I would want to use to solve the trade deficit and encourage a domestic workforce.
- How to Solve the Trade Deficit Part III: The rise of the knowledge worker vs. the manual worker and its implication on the growing gap between the rich and the poor.
- How to Solve the Trade Deficit Part IV: Standards of living have not fallen for everyone except one specific category of people: white, straight, protestant, high school educated men. This is due to workplace access now being granted to all citizens, not just those with privilege.
- How to Solve the Trade Deficit Part V: In this final section, I answer some of the other questions a reader submitted regarding how to solve the trade deficit.
Related posts:
- How to Solve the Trade Deficit – Part I
- How to Solve the Trade Deficit – Part II
- How to Solve the Trade Deficit – Part V
- How to Solve the Trade Deficit – Part III
- How to Solve the Trade Deficit – Part IV
- A Reader Question About the Trade Deficit
- Free Trade Isn’t Always Fair Trade
- American Manufacturing Profits Are the Same After Inflation As In 1960
- Unemployment Is Only 4.8% … If You Are a College Graduate
- American Households Continue to Deleverage But That Only Tells Part of the Story
I'm a private investor who loves architecture, furniture, clothes, history, philosophy, books, cooking, and music as much as I do finance. 
