Trade Deficit: The Hidden Root Cause of America's Trade Imbalance Explained - Econ Lessons

Hi, my name is Mark, and I am a monetary economist. The cause of the trade deficit is simple. I explore how U.S. government debt and excessive spending contribute to America's persistent trade deficit, not by exporting goods but by exporting dollars. This process sustains global imbalances and undermines the natural corrections described by David Hume’s specie-flow mechanism under the gold standard and fixed exchange rate systems.

I discuss how Adam Smith and later Joan Robinson critiqued beggar-thy-neighbor policies like tariffs, which attempt to protect domestic industries but often harm global trade and cooperation. These historical insights help explain why floating exchange rates have failed to adjust to trade imbalances in the modern world.

Instead of allowing deflationary adjustments to make U.S. goods more competitive, inflationary monetary policy—fueled by debt-financed government spending—keeps domestic prices elevated. This dynamic perpetuates America's role as a money manufacturer, exporting inflation globally and financing the U.S. debt through dollar demand rather than real economic productivity.

I want to connect these classic economic theories to today’s fiscal and trade realities and argue why tariffs, debt, and monetary expansion have created a system in which the U.S. exports money instead of manufactured goods.