by topspin | 2025-05-21 08:28:33+00:00
The US has large trade deficits because US leadership uses the lucrative US market as a diplomatic reward. By "leadership" I mean the governing interests of the US, not merely its political class.

The history of this is long, going back to the 19th century, but it became a major diplomatic tool after WW2. As the US sought to secure allies after WW2, it used the incredible wealth of its population as a carrot to gain and ensure compliance of foreign nations. Japan is an obvious example: the recovery and prosperity of Japan was the direct result of deliberately utilizing the US domestic market to create demand for Japanese products. The result is well understood today: Japan thrived as it claimed enormous shares of US electronic, automotive, machine tool, and other sectors of the US economy, and the US secured a strategic ally in the Western pacific, where it has hosted vast military resources for going on 75 years now.

This practice has continued unabated ever since, with Trump being effectively the only significant impediment to have ever emerged. In the 1990s the rationale for MFN status for China was "human rights." China was expected to comport with some notion of human rights and, in turn, China would join the long list of MFN status nations. Again, trade with the US as a diplomatic reward for some US prerogative.

All of this is incentivized by the fact that, aside from approval from the US Senate, the US president has the exclusive prerogative to negotiate trade deals with little to no limits on the terms. The president can do this without passing any bills in Congress, allocating any budgets, winning any court battles, etc. Just negotiate a trade deal, get it approved by the Senate, and shazam: you've changed the world. This is further incentivized by "fast track" authority for the executive, which has been US law since 1975.

Finally, this is all lubricated by the ability to ship vast quantities of cargo from distant locales at low cost. This part really spun up in the 1960's with the US driven standardization of containerization. With this affordance in hand, it became feasible to leverage low cost foreign resources on a large scale, and US captains of industry now had a solution to relieve themselves of high costs in the US: labor costs, regulatory costs, taxes, etc.

With industry and government fully aligned based on independent interests, the trend became the dominant factor of global economics: the world literally runs on US trade deficits.

This has been a one way street for coming up on a hundred years now. It isn't terribly surprising that the pendulum is, if not yet swinging back, at least slowing its present direction. I suspect this part might be hard to understand for those that frequent a site like HN, but the bottomless well of US wealth is basically gone now: much of the population of the US lives a sort of high tech subsistence lifestyle, and it's not difficult to imagine the day when their access to credit will effectively stop. That will happen in parallel with the collapse of government finance in the US, which basically creates a new benchmark for the concept of "clown world" with every passing day.

So there is a hard expiration date coming for all of this.