What Drives The Trade Deficit?

It’s the national savings-investment imbalance, Stupid!

It is explained clearly by the following national income identity, which we have posted several times over the years.

(S-I) + (T-G) = Current Account Balance (Foreign Savings)

 (S-I) is the ‘private savings balance’ or the difference between private sector savings (S) and investment (I); (T-G) is the ‘government balance’ or the difference between tax receipts (T) and all government expenditure (G); (X-M) is the difference between exports (X) and imports (M) and is usually called the simple ‘current account balance’.  – George Irvin

Here is the latest data illustrated by the CBO,

CBO_Savings_Investment Imbalances

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