Apr

15

The president seems to believe that trade deficits are evil and must be stamped out. If he ever actually succeeded at meaningfully reducing the trade deficit (so far the reverse is happening), what would be the implications for capital flows into and out of the US, and how might those changes affect markets?

Humbert L. responds:

Finance professor Jeremy Siegal wrote a piece decades ago about how the trade deficit is driven in part to demographics. Currently, the US is consuming more than it can produce, due to baby boomers retiring, no longer working, while still consuming. China is on the other side of the coin, with a younger workforce that is producing more than it's consuming.

Eventually the demographics will reverse, along with the trade deficit. The old folks in the US pass away, along with their consumption, and the US will start producing more than it's consuming, while China's young ones become old, retire, and they start consuming more than they are producing.

Asindu Drileba writes:

This sounds like a very plausible explanation for the phenomenon of "cycles" in the stock market, as described by the senator.


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