If you search Coyoteblog for the title of this post, you will see a number of others with the same title. It seems to be a theme we keep having to come back to. Here is one example of where I tried to explain why the trade deficit is not a debt.
Take the Chinese for example. One thing that people often miss is that the Chinese buy a LOT more American stuff than the trade numbers portray. The numbers in the balance of trade accounts include only products the Chinese buy from the US and then take back to China to consume there. But the Chinese like to buy American stuff and consume it here, in the US. They buy land and materials to build factories and trade offices. They buy houses in California. They buy our government bonds. None of this stuff shows up in the trade numbers. Is it somehow worse that the Chinese wish to consume their American products in America? No. How could it be. In fact, its a compliment. They know that our country is, long-term, a safer and more reliable place to own and hold on to things of value than their own country.
Dollars paid to a Chinese manufacturer have to get recycled to the US -- they don't just build up in a pile. If I am a construction contractor in LA and build that manufacturer a new office or a local home and get paid with those recycled dollars, I am effectively exporting to the Chinese, only the goods and services I sold them never leave the country and so don't show up in the trade numbers. So what does this mean? In my mind, it means that the trade deficit number is a stupid metric to obsess over.
Another way I think about it is to observe that the US is winning the battle of stuff. Money as money itself does not improve my well-being -- only the stuff (goods and services) I can purchase with it can do so. So i t turns out that other countries ship far more stuff to the US than we ship out. And then these folks in other countries take the money they earn from this trade and buy more stuff in the US and keep keep that stuff here!
I am reminded of all this because several other folks are taking a swing at trying to make this point to the economically illiterate. Don Boudreaux does so here, and Dan Ikensan here. And here is Walter Williams as well.