President Biden’s success depends on working-class prosperity which means lowering the trade deficit. But technically viable policy tools are not on the public radar, as Biden’s predecessor proved. The best approach is reducing the trade deficit’s unneeded financing by eliminating esoteric tax breaks granted exclusively to foreigners. Doing so will challenge some of the most sacred doctrines of mainstream economics and the naked self-interest of Wall Street — and allow the president to govern with the aid of a strong and balanced economy.
For almost 30 years, policy makers have fetishized “the strong dollar” even though they know it overprices American goods abroad and underprices foreign goods here at home. However, the strong dollar story of U.S. trade deficits is misleading. The underlying problem is the inflow of unneeded foreign saving into our financial system. They are the first link in a chain of causality that has ravaged American manufacturing.
As individuals, we borrow to buy more than we can currently afford. If we do not want to borrow, we are not obligated to do so. Unfortunately, it does not work that way for the U.S. economy. America serves as the world’s banker because foreigners can lend to us just by buying U.S. bonds or stocks or depositing money in U.S. banks. America passively accepts their choice.
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