The U.S. trade deficit is an American problem. It is the result of insufficient savings at home and a widening budget deficit. In structural terms, the U.S. trade deficit shows that the productive capacity of the U.S. economy is too small relative to spending. Foreign financing allows the government to expand its expenditures without putting too large a burden on the taxpayer. This way funds are set free for private consumption.
The U.S. economy is propped up by China and Japan, while at the same time these two countries depend on the United States. Japan is helped by its persistent trade surplus with the United States to soften the consequences of its economic stagnation, and China relies on its surplus in foreign trade with the U.S. in order to proceed with its development strategy. By this arrangement, Japan can maintain its level of wealth, while China is in a position to develop and accumulate wealth at a rapid pace. In this constellation, the United States is the beneficiary in terms of real goods and enjoys its present period of prosperity. [FULL ARTICLE]