How can the US be a rich country if it has such a large trade deficit?
I’ll argue that the US is a rich society, and that is the reason it has a trade deficit.
The term “Trade deficit” is quite self-explanatory - the difference between what a country sells to others in terms of good and services (exports) and what it buys (imports). A trade deficit arises when the value of exports is lesser than that of imports.
Who is it that can afford to import more things? The rich, of course.
All the rich people run a personal trade deficit. Mukesh Ambani pays his chauffeurs, cooks, attendants, security detail, yada, yada, yada. He buys a lot of stuff too. He takes these goods and services and pays for them. He doesn’t offer this services to anyone. His “exports” are zero and his “imports” are a tangible positive sum.
A rich nation has a lot more avenues for making money than simply trading.
US has a net positive “brain drain”. All the intelligent folks are swarming towards it for a brighter future prospects. These brilliant people will help create the next business unicorn providing thousands of jobs and millions in corporate tax revenues. American companies use parts manufactured in India, China, Taiwan, or Bangladesh, simply assemble it or put a tag on it and then sell it for a huge profit. US$ being unofficially the world currency means that the US never has to worry about losing the value of its holdings as much as other nations do.
Let’s take an example.
You start a boutique fashion firm. And at the same time, Ryan Reynolds does too. You both start with 10 excellent employees each of which are able to produce one amazing, captivating design every week. So far, so good.
Your products and prices are comparable. But you realize that your sales are noticeably lower than Ryan’s. You offer lower prices to make up for it.
After a couple of months, when you both plan to expand, you find that getting good artisans and designers is not easy. However, Ryan just managed to hire about 50 in just 2 days. And what!!! your top performer just left you for Ryan’s firm??
Slowly the talent, perception, sales, and revenue gap increases.
Ryan can take a simple white t-shirt and slap his stupidly perfect face on it and boom!
While you can construct the perfectly symmetrical, mathematical, golden-ratioed design and people will still wait for the clearance sale to buy it.
In the end, you become a supplier for Ryan. Gulp down your pride and tell him that you will do the hard work in exchange for a minimum guaranteed order size and profit margin and he can sell them under his brand name. Win-win for both! Although Ryan is the clear bigger winner here.
US has some of the largest companies in the world paying corporate taxes. Silicon Valley is the mecca of entrepreneurs. Almost every finance professional wants to work on Wall Street. Every actor worth their salt wants a break in Hollywood. Thousands of exceptionally smart Indian and Chinese folks immigrate to the States every year in pursuit of their dreams. Ivy League churns out some of the smartest young folks in the world. US bonds and currency is one of the safest havens in times of crisis.
US has a large trade-deficit because it earns via other means and doesn’t have to “slave” away.