Are you worried about the US trade deficit?

If you are worried about the US trade deficit, read the article "Another Nonproblem" by Richard W. Rahn, a senior fellow of the Cato Institute and chairman of the Institute for Global Economic Growth. How is it that through most of its history the US has had a trade deficit?

He explains that US citizens hold investment assets in other countries and the people of other countries also hold assets in the US. The difference in the value of these assets has remained steady at 17% of the US GDP for many years, despite the absolute size of our trade deficit increasing. This is because the value of our assets in other countries and of the assets of other countries' people in the US have grown at a rate keeping pace with the trade deficit. The investments of US citizens in other countries yield more income on less money invested on average than do the investments that foreigners make in the US. Foreigners like our higher interest rate government bonds compared to those of their own countries for both the higher rate and the low risk. Americans like the higher rates of return on equity investments in other countries. Equity (stock) investments commonly produce a higher rate of return than do government bonds. The net flow of money is in equilibrium and is likely to remain that way provided the US remains politically and economically more stable than most other countries.