"U.S. trade deficits are large and need to be brought down. Reducing U.S. fiscal deficits is important. At the same time, there is no doubt in the US ability to pay the world and therefore no crisis. The U.S. has run a trade deficit for most of the past 50 years, but has never had a fiscal crisis related to this imbalance because international investors have kept buying up U.S. assets throughout that period."
"To balance the books with the rest of the world, America's trade shortfalls have to be matched by foreign investment into U.S. assets. If the U.S. were to lose investor confidence abroad, then foreign exchange reserves might run dry and the country would no longer be able to service its international debt. That outcome, known as a balance-of-payments crisis, would be an enormously more challenging problem."
President Trump has declared the U.S. trade deficit a national emergency, invoking emergency powers to implement reciprocal tariffs. However, economists argue this conflates trade problems with a different crisis. The U.S. trade deficit reached $901 billion last year, but this only becomes a crisis if the country cannot afford to pay. According to former IMF chief economist Gita Gopinath, the U.S. has no difficulty servicing its international obligations. Historically, America has run trade deficits for 50 years without fiscal crisis because foreign investors continuously purchase U.S. assets including government debt, real estate, and equities. A true balance-of-payments crisis would occur only if foreign investors lost confidence and stopped buying U.S. assets, which would be far more serious than current trade imbalances.
Read at Fortune
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