Why isn’t the US a trade-surplus economy?

CHINA FINANCIAL - Report 07 Nov 2018 by Michael Pettis

Special points to highlight in this issue:
• In a well-functioning world of global trade, the US should either run a more-or-less balanced trade account or it should run persistent trade surpluses. In standard trade theory, it is the norm for rich, mature economies with high income levels and efficient financial systems to export excess savings, especially to faster growing, developing economies.
• When these normal trade dynamics are distorted by extremely high levels of income inequality, as they are today in the US, this tendency for the US to export excess savings should be exacerbated. For this reason the US today should run the large trade surpluses that correspond to a large net export of savings. The fact that the US has run permanent trade deficits since the 1970s can only be explained by conditions that have distorted normal global trading patterns.
• China’s Singles’ Day, on November 11, is the biggest e-commerce day in the world by far, and its enormous growth and its blending of high-tech retail with China’s emerging urban youth culture will perhaps one day make it a symbol of China’s bubble economy. Its performance next week should give some indication of the strength of Chinese consumption.

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