An important piece from Harvard economist Martin Feldstein:
Inconvenient Truths About the US Trade Deficit
“The reason why
Americans’ saving and investment decisions drive the overall trade deficit is
straightforward: If a country saves more of total output than it invests in
business equipment and structures, it has extra output to sell to the rest of
the world. In other words, saving minus investment equals exports minus imports
– a fundamental accounting identity that is true for every country in every
year.
So reducing the US
trade deficit requires Americans to save more or invest less. On their own,
policies that open other countries’ markets to US products, or close US markets
to foreign products, will not change the overall trade balance.”
US Saving Rate
