Trade deficits are driven by national savings and investment rates, which can be in turn driven by all sorts of mostly benign social or cultural factors, and so

Trade deficits are driven by national savings and investment rates, which can be in turn driven by all sorts of mostly benign social or cultural factors, and so its hotly debated whether they matter at all. DeLong has some explanations, claiming that savers around the world pay a premium for dollar denominated assets, which really messes up this entire analysis. [0] The upshot is that the rate of return on our foreign assets tends to be better than the return to foreign investment in the US. [1] That could be right, at least makes some sense... foreigners are just buying something to say they bought something in the US (as a hedge against political catastrophe? maybe still a good buy). So if it's true that there's a rate of return gap, then our massive "purchases" abroad are really investments that will pay for themselves. If so, we'll probably reinvest those returns, often abroad, so we'll never wipe the deficit, and probably even add to it over time, even while coming out ahead. [0] https://web.archive.org/web/20070806050555/http://www.j-bradford-delong.net/movable_type/2003_archives/001993.html https://web.archive.org/web/20070806050555/http://www.j-brad... [1] http://econlog.econlib.org/archives/2006/08/do_we_even_have.html http://econlog.econlib.org/archives/2006/08/do_we_even_have....