Bellocchi, Alessand o; T a aglini, Giuseppe
A icle
The T ade De ici Delusion: Why Ta i s Will No Make
Ame ica G ea Again
In e economics
Sugges ed Ci a ion: Bellocchi, Alessand o; T a aglini, Giuseppe (2025) : The T ade De ici Delusion:
Why Ta i s Will No Make Ame ica G ea Again, In e economics, ISSN 1613-964X, Sciendo, Wa saw,
Vol. 60, Iss. 4, pp. 227-234,
h ps://doi.o g/10.2478/ie-2025-0044
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/325279
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
ZBW – Leibniz In o ma ion Cen e o Economics 227
In e na ional T adeDOI: 10.2478/ie-2025-0044
In e economics, 2025, 60(4), 227-234
JEL: F13, F32, F41
Alessand o Bellocchi and Giuseppe T a aglini
The T ade De ici Delusion: Why Ta i s Will No
Make Ame ica G ea Again
This s udy analyses he p o ec ionis ade policies o he T ump Adminis a ion, ocusing
on a i s’ impac on he US ade de ici and b oade economic consequences o i s ade
pa ne s. By highligh ing i e s ylised ac s cha ac e ising he US economy, he analysis
shows ha he ade de ici p ima ily a ises om he pe sis en gap be ween na ional sa ing
and domes ic in es men , a he han un ai o eign ade p ac ices. Using open economy
accoun ing, he s udy demons a es ha a i policies a e ine ec i e o co ec ing ade
imbalances and could exace ba e hem, nega i ely a ec ing bo h US and Eu opean economies
h ough dis up ed ade lows, inc eased economic unce ain y, and ins abili y in inancial
ma ke s. The s udy also explo es se e al possible scena ios esul ing om hese policies and
sugges s ha p o ec ionis measu es ep esen an “impossible heo em” o ebalancing ade
de ici s and pose signi ican isks also o he economic s abili y o US ade pa ne s.
Alessand o Bellocchi, Uni e si y o U bino Ca lo
Bo, I aly.
Giuseppe T a aglini, Uni e si y o U bino Ca lo Bo,
I aly.
© The Au ho (s) 2025. Open Access: This a icle is dis ibu ed unde he
e ms o he C ea i e Commons A ibu ion 4.0 In e na ional License
(h ps://c ea i ecommons.o g/licenses/by/4.0/).
Open Access unding p o ided by ZBW – Leibniz In o ma ion Cen e
o Economics.
In Ma ch 2017, du ing his i s p esiden ial e m, Donald
T ump signed an execu i e o de aimed a iden i ying he
causes o he g owing US ade de ici . T ump and his ad-
minis a ion s a ed om he assump ion ha he imbal-
ance be ween expo s and impo s in he Ame ican econ-
omy was p ima ily due o un ai ade p ac ices adop ed
by in e na ional pa ne s. Acco ding o T ump, high o -
eign a i s, implici du ies and non- a i ba ie s imposed
by o eign go e nmen s, along wi h domes ic policies ha
es ained consump ion, p e en ed he expansion o US
expo s o he es o he wo ld, he eby hinde ing he e-
balancing o he Ame ican ade de ici . In line wi h his
in e p e a ion, he ollowing yea , T ump signed a memo-
andum ha launched a a i o ensi e agains China, im-
posing du ies on a wide ange o impo ed goods. Ta i s
we e in oduced on Chinese goods amoun ing o o e US
$300 billion, pa icula ly in he echnology and in ellec ual
p ope y sec o s (Chad & Zhang, 2019).
Today, in his second p esiden ial e m, T ump has
launched a new wa e o p o ec ionism. The ede al
go e nmen has in oduced a uni e sal 10% a i on all
goods impo ed in o he Uni ed S a es, along wi h high-
e du ies on goods om 57 speci ic ading pa ne s.1
Acco ding o da a o he Tax Founda ion (a Washing on
DC based hink ank), he a e age a i 2 applied o im-
po s is expec ed o ise om 2.5% in 2024 o 16.5% in
2025 unde T ump’s p oposed ade policies, he high-
es a e since 1937 (Figu e 1). In his scena io, he a i s
would educe US impo s by mo e han US $800 billion
in 2025, equi alen o 25% o cu en impo olumes
(Yo k & Du an e, 2025).
In he cu en ision o he Republican Pa y, ade de i-
ci s a e inhe en ly nega i e and should be elimina ed.3
The Adminis a ion a gues ha he US ade de ici s ems
om o eign egula o y ba ie s on US goods and se ic-
es, es ic i e en i onmen al egula ions o ade pa ne s,
di e ences in consump ion ax a es, addi ional compli-
ance cos s (i.e. VAT) and o eign cu ency manipula ion
(Obs eld, 2025). This e lec s a mo e me can ilis han lib-
1 On 9 Ap il, P esiden T ump announced a 90-day suspension o mos
a i s o eopen ade nego ia ions. This was ollowed by a majo US-
China uce on 12 May, wi h bo h sides ag eeing o sha ply lowe a -
i s. The mo e ma ks a de-escala ion in global ade ensions.
2 The weigh ed a e age a i is calcula ed based on ac ual applied
a es, weigh ed by he sha e o impo s om each ade pa ne .
3 The o mula used is: ∆τi = (xi - mi ) / (ε ∙ φ ∙ mi ), whe e xi - mi is he bila -
e al ade balance wi h a gi en coun y, mi is he olume o US impo s
om ha coun y, ε is he p ice elas ici y o impo demand and φ is
he p ice elas ici y o impo s wi h espec o a i s. These wo pa-
ame e s we e se espec i ely a 4 and 1/4.
In e economics 2025 | 4
228
In e na ional T ade
Figu e 1
US a e age e ec i e a i a e
No es: Da a o 2025 is p ojec ed. The g aph includes IEEPA (In e na-
ional Eme gency Economic Powe s Ac ) a i s on Canada, Mexico and
China; he “ ecip ocal” a i s o 2 Ap il 2025; and he a i s on s eel, alu-
minum and ca s.
Sou ce: Au ho s’ elabo a ion on da a om he Tax Founda ion.
e al iew o in e na ional ade. I also ep esen s a naï e
concep ion o he in e na ional mac oeconomic sys em,
no only ega ding he exchange o goods and se ices
bu also he mo emen s o capi al and he lows o sa -
ings, which a e he na u al coun e pa o he ade bal-
ance.
Will T ump’s policy be e ec i e in co ec ing he US ade
de ici ? O is he a i policy me ely an “impossible heo-
em”? In wha ollows, we show ha he US ade imbal-
ance is only ma ginally a ibu able o he “p eda o y”
ac o s hypo hesised by he US go e nmen . Ra he , i
la gely e lec s a pe sis en , decades-long gap be ween
na ional sa ings and domes ic in es men ( he so-called
sa ing-in es men gap).
I his explana ion holds, i ca ies a c ucial implica ion: e -
o s o educe he ade de ici h ough p o ec ionis poli-
cies may back i e, ul ima ely widening he de ici and ig-
ge ing ad e se e ec s on economic g ow h and in la ion.
As we show below, he global each o T ump’s ade pol-
icy ex ends a beyond bila e al ic ions wi h China. Eu-
ope, being bo h a majo ading pa ne and geopoli ical
ally o he Uni ed S a es, is likely o be a ec ed by hese
measu es. In he sho e m, Eu opean expo e s may
su e om he educ ion in US impo demand, pa icu-
la ly in he au omo i e, machine y and luxu y goods sec-
o s. In addi ion, i T ump’s a i plan igge s e alia o y
measu es o b oade ade agmen a ion, Eu opean i ms
could ace ising inpu cos s and supply chain dis up ions
(Fu man, 2025).
Mo e s uc u ally, an en enched p o ec ionis s ance by
he US may accele a e he econ igu a ion o global alue
chains and ade alliances – pushing Eu ope o deepen
ade ela ions wi h China and o he eme ging ma ke s,
while inc easing p essu e on he EU o asse a mo e
au onomous comme cial and indus ial policy. These
de elopmen s could no only eshape he ansa lan ic
economic ela ionship bu also es he esilience o he
mul ila e al ade sys em i sel (G os, 2025).
This a icle i s p esen s key s ylised ac s abou he
mac oeconomic s uc u e o he Uni ed S a es. I hen ex-
amines he his o ical e olu ion o he US ade de ici and
explo es he ade balance, emphasising he ole o a i
policies in shaping bo h in e nal and ex e nal equilib ium.
This is ollowed by a c i ical assessmen o he e ec i e-
ness o a i s in educing he ade de ici . The analysis
ou lines h ee po en ial scena ios o he US in he ace
o ising p o ec ionism, and concludes wi h e lec ions
on he p ospec s o he US ade balance, he legacy o
T ump-e a a i policies and he long- e m sus ainabili y
o he global economic o de .
S ylised ac s
In his sec ion, we p esen i e s ylised ac s abou he
mac oeconomic s uc u e o he Uni ed S a es ha we
conside c ucial o in e p e ing he cu en Ame ican
ade de ici .
Fi s , he US economy has his o ically been cha ac e ised
by a high le el o p i a e consump ion, low public expend-
i u e and a low deg ee o openness o in e na ional ade.
In 2024, he deg ee o openness o he economy, meas-
u ed as he sum o expo s and impo s as a pe cen age
o GDP, was only 25%, signi ican ly lowe han ha o he
Uni ed Kingdom (60%), he Eu opean Union (50%) and
Japan (45%).
Second, p i a e consump ion ep esen s he main com-
ponen o US GDP, amoun ing o 68% in 2024 (compa ed
o 62% in he UK, 54% in Japan and 53% in he EU). The
a e age p opensi y o consume, s able du ing he 1960-
1980 pe iod a a ound 90% o pe sonal income, has in-
c eased in ecen yea s o abou 95%.4 The high le el o
p i a e consump ion is a majo d i e o household indeb -
edness, which in 2024 s ood a 72% o na ional income.
Thi d, inal go e nmen consump ion expendi u e is his o -
ically low and accoun ed o only 13% o GDP a he end
o 2024. This unde sco es he limi ed ole o he public
4 Pe sonal sa ings is measu ed as a a io o sa ings o pe capi a GDP
(Obs eld, 2025).
0
4
8
12
16
20
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
2024
2025
1995
Wo ld T ade
O ganiza ion
T ump 2
2018
T ump 1
1964-1967
Gene al Ag eemen on
Ta i s and T ade
Kennedy Round
%
ZBW – Leibniz In o ma ion Cen e o Economics 229
In e na ional T ade
Table 1
Composi ion o US agg ega e demand (% o GDP)
No es: The able p esen s en-yea a e age alues. The la es igu e
(2025) in he 2020-2025 a e age includes es ima ed alues p o ided by
he mac oeconomic o ecas s o he Eu opean Commission.
Sou ce: Au ho s’ calcula ions based on AMECO da a.
Yea s
P i a e
consump-
ion
In es -
men
Go e n-
men
consump-
ion Expo s Impo s
1960-1969 60.4 22.3 16.7 5.1 4.5
1970-1979 60.9 22.3 16.9 7.5 7.7
1980-1989 62.8 22.9 16.0 8.3 10.0
1990-1999 65.1 21.3 15.1 10.2 11.7
2000-2009 67.5 21.6 15.4 10.6 15.0
2010-2019 67.8 20.4 14.8 12.5 15.5
2020-2025 67.8 21.5 13.9 10.9 14.1
sec o in he US economy compa ed o o he ad anced
economies (20%-21% in he EU, UK and Japan). Ne -
e heless, public sa ing (i.e. he di e ence be ween ax
e enues and go e nmen expendi u e) emains nega i e.
Acco ding o he la es a ailable da a, he ede al budge
balance was -6.3% o GDP in 2023.
Fou h, high domes ic consump ion has been accompa-
nied by a decline in household sa ings a es and an in-
c ease in in es men (in capi al goods and echnology)
necessa y o suppo long- e m p oduc ion g ow h. Ne
ixed in es men cu en ly amoun s o 5.2% o GDP, highe
han in he EU (3%), he UK (2.5%) and Japan (0.8%). The
US sa ing a e (as a sha e o GDP) emains ela i ely low
compa ed o ha o o he majo ad anced economies.
Fi h, he ade balance – de ined as he di e ence be-
ween expo s and impo s – has s eadily de e io a ed
since he 1980s. The cu en accoun balance has p o-
g essi ely wo sened o he p esen day. Wi hin his con-
ex , he ade balance o se ices emains in su plus.
These i e s ylised ac s, summa ised in Table 1, in ou
iew, p o ide he key o unde s anding he unde lying
causes o he US ade de ici and he impac o T ump’s
p o ec ionis policies.
The US ade de ici
O e he pas 50 yea s, he Uni ed S a es has expe i-
enced la ge and pe sis en ade de ici s. As o Decembe
2024, a he end o P esiden Biden’s e m, he US cu -
en accoun de ici had eached US $918 billion, equi a-
len o 3.1% o GDP (Figu e 2a). The con inuous g ow h o
impo s ela i e o expo s o e ime has been inanced
h ough ne bo owing om he es o he wo ld and by
selling US asse s o o eign in es o s (Figu e 2b). As a e-
sul , he Uni ed S a es has gone om being a global c ed-
i o o a ne deb o .
This change un olded o e a ela i ely long pe iod o ime.
As ea ly as he la e 1960s – ollowing he de elopmen o
he so-called Ame ican model, which had sus ained he
pos -wa Eu opean eco e y (Ma shall Plan), and la e wi h
he oil c isis o he ollowing decade – he i s signs o a
de e io a ing ade balance began o eme ge (T a aglini,
2024). The de ici widened du ing his ime and became
s uc u al in he 1980s, in pa due o he expansiona y is-
cal policies o he Reagan Adminis a ion (Reaganomics),
which included majo income ax cu s (based on he so-
Figu e 2
US ade balance and he sa ing-in es men gap
Sou ce: Au ho s’ elabo a ion on da a om BEA.
-3.12%
-6
-4
-2
0
2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
22%
18%
10
12
14
16
18
20
22
24
26
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
In es men Sa ing
a. T ade balance (% o GDP) b. Sa ing and in es men (% o GDP)
In e economics 2025 | 4
230
In e na ional T ade
called La e cu e) ha we e no accompanied by equi a-
len educ ions in public spending (Blancha d, 1987).
The combined e ec o hese changes was wo old: on
he one hand, hey e i alised na ional p oduc ion and
incomes a e he s agna ion o he 1970s; on he o he ,
hey led o a decline in bo h p i a e sa ing – as Ame ican
households inc eased consump ion – and public sa ing,
due o ising ede al de ici s. E en ually, his led o a de-
c ease in na ional sa ings ( he sum o p i a e and public
sa ings). Economic g ow h also sus ained g ea e de-
mand o impo ed goods by i ms and households, u -
he wo sening he ade de ici and gi ing ise o he phe-
nomenon o win de ici s: he simul aneous occu ence o
ade and budge de ici s (Mille & Russek, 1989).
Only in he 1990s did a empo a y e e sal occu . A e-
newed commi men o iscal discipline, emb aced by bo h
he Republican adminis a ion o Geo ge H. W. Bush and
he Democ a ic adminis a ion o Bill Clin on, esul ed in
highe axes and s ic e public spending con ols. A he
same ime, he in o ma ion and communica ion echnol-
ogy (ICT) e olu ion led o a enewed su ge in US p o-
duc i i y, boos ing incomes and ax e enues and b ie ly
e u ning he ede al budge o su plus. Howe e , he in-
c ease in na ional sa ing was s ill no su icien o o se
he g owing ade de ici , which con inued o ise due o
in e nal in es men d i en by he explosi e g ow h o he
ICT sec o (Mann, 1999).
In he ea ly 2000s, na ional sa ing declined again, due o
he Bush Adminis a ion’s ax cu s and inc eased public
spending ied o he global “wa on e o ”. This pe iod
saw he ade de ici deepen u he , na owing only em-
po a ily du ing he 2008 inancial c isis and he esul ing
collapse o esiden ial in es men in he US. The subse-
quen US $800 billion iscal s imulus ini ia ed by P esiden
Obama (known as he Ame ican Reco e y and Rein es -
men Ac ) helped li he economy ou o he c isis, bu al-
so widened he ede al de ici , compounded by inc eased
wel a e spending associa ed wi h he new public heal h
co e age p og ams (Obamaca e; Da is, 2011).
Today, ollowing he ansi ion in leade ship om T ump
and Biden, he US ade de ici has s abilised, ye emains
subs an ial. Fu he , he issue o win de ici s is s ill un e-
sol ed. The cu en Republican adminis a ion has inhe -
i ed a p olonged phase o economic expansion, wi h GDP
g ow h a es a e aging abo e 3%.
I is in his con ex ha T ump’s p o ec ionis policy agen-
da made a comeback, wi h he goal o elimina ing he
ade de ici (and ebalancing he ede al budge ). These
a e complex and, in he sho e m, con adic o y goals
ha will eshape bo h he in e na ional ade landscape
and US domes ic sa ing dynamics (Obs eld, 2025).
Ta i s and ade balance
The balance o paymen s e lec s in e na ional lows o
goods and se ices as well as changes in a coun y’s ne
o eign weal h. These lows a e inhe en ly in e connec ed.
Le us s a wi h he cu en accoun . Measu ed in nomi-
nal e ms, he cu en accoun (o ne expo – NX) is he
di e ence be ween o al expo s X and impo s IM. This
alue can also be exp essed as he di e ence be ween
GDP (Y) and domes ic demand
NX = Y – (C + I + G), (1)
whe e C is p i a e consump ion, I in es men and G go -
e nmen spending. This iden i y p o ides wo impo an
insigh s. Fi s , a ade de ici (NX < 0) does no necessa ily
signal excessi e consump ion oday a he expense o o-
mo ow. I may e lec high in es men , public o p i a e,
o aise u u e p oduc i e capaci y. Al e na i ely, i could
esul om high public spending. Second, policies aimed
a imp o ing he ade balance – whe he h ough a i s o
cu ency de alua ion – mus ope a e h ough he mac o-
economic channel, inc easing Y ela i e o domes ic ab-
so p ion (C + I + G).
This las poin can be de eloped h ough he lens o he
open mac oeconomic model (Blancha d, 2024). Impo s
a e he pa o domes ic demand ha alls on o eign
goods. They depend posi i ely on domes ic income and
a e in luenced by he eal exchange a e, ha is, he ela-
i e p ice o domes ic goods compa ed o o eign goods.
The less expensi e domes ic goods a e ela i e o o -
eign goods, he smalle he domes ic demand o o -
eign goods is. On he o he hand, highe o eign income
means highe o eign demand o all goods, bo h o eign
and domes ic. So, highe o eign income leads o highe
expo s. Howe e , expo s also c i ically depend on he
eal exchange a e. Speci ically, he highe he p ice o
domes ic goods in e ms o o eign goods, he lowe he
o eign demand o domes ic goods. In o he wo ds, he
highe he eal exchange a e, he lowe expo s a e.
Acco ding o his amewo k, ne expo s NX dec ease
wi h domes ic ou pu and inc ease wi h o eign income.
A dep ecia ion o he eal exchange a e makes expo s
mo e compe i i e.5 Ta i s ac as an a i icial change in
5 Assuming he Ma shall–Le ne condi ion holds. In he sho un, he
low-p ice elas ici y o impo and expo demand due o con ac ual
igidi ies and consume habi s could s ill esul in a empo a y wo s-
ening o he ade balance (J-cu e).
ZBW – Leibniz In o ma ion Cen e o Economics 231
In e na ional T ade
ela i e p ices: by making o eign goods mo e expensi e,
hey mimic eal dep ecia ion and imp o e he compe i-
i eness o domes ic p oduc s.
This logic unde lies T ump’s p o ec ionis s a egy: im-
posing a i s o imp o e he US ade balance by edi ec -
ing in e na ional ade lows owa ds Ame ican p oduce s.
In his “T umpian” ision, a i policy appea s o deli e
i s p omise: boos ing ou pu and sh inking he ade de i-
ci . Bu is i so simple? As we discuss below, unde lying
mac oeconomic dynamics complica e his na a i e and
can lead o ou comes ha di e ge signi ican ly om he
policy’s in ended goals.
T ump’s “impossible heo em”
Al hough economis s o en deba e he me i s o speci ic
policy measu es, e e yone ecognises he logic o ac-
coun ing iden i ies. One o he mos e ealing iden i ies
applies o in e na ional ade: he ade balance is also
equal o na ional sa ing minus in es men
NX = SN − I, (2)
whe e na ional sa ing SN is he sum o p i a e sa ing and
he go e nmen ’s budge balance (T – G), wi h T measu -
ing ax e enue. This iden i y is aluable in explaining he
ela ionship be ween he ade balance and changes in a
coun y’s sa ing and ne weal h.
When a coun y sa es mo e han i in es s (NX > 0), he
excess sa ing lows ab oad esul ing in a ade su plus.
Con e sely, i i in es s mo e han i sa es (NX < 0), i mus
bo ow he di e ence om he es o he wo ld, leading o
a ade de ici . The e o e, he ade balance is he mi o
image o a coun y’s sa ing and in es men decisions.
Fo he US, his end (SN – I) has been pe sis en ly nega-
i e. Fo o e ou decades, he coun y has in es ed
mo e han i sa ed, inancing his gap wi h o eign capi al.
The ade de ici has been he na u al consequence o a
na ional sa ing sho all.
Mac oeconomic da a con i ms his pa e n. Acco ding
o he Bu eau o Economic Analysis (BEA), since 1976,
in es men has a e aged 21.7% o GDP, while na ional
sa ing has lagged a jus 19.1%. Tha 2.6% gap shows
up almos iden ically in he cu en accoun de ici (Fig-
u e 3a).
Behind he sa ing sho all lie deepe ends. Public sa -
ing has been nega i e o yea s, as pe sis en budge
de ici s d ag down na ional sa ing. In 2024, he ede al
go e nmen ’s budge balance s ood a -3.6% o GDP. A
he same ime, household sa ing a es emain his o ically
low (5% o disposable income), e lec ing a consump ion-
d i en g ow h model ha lea es li le oom o inancial
su pluses (Figu e 3b).
This imbalance is mi o ed in he s uc u e o in e na ional
ade. The US uns a pe sis en de ici in goods (-4.2%
o GDP), pa ially o se by a su plus in se ices (a ound
+1%), including sec o s like ech, inance and AI. Bu o e -
all, he demand o impo ed goods o e whelms he gains
om expo ing se ices (Figu e 3c).
Wha a e he implica ions o hese ac s o T ump’s a -
i s a egy? Th ee key insigh s ollow om he sa ing-in-
es men iden i y:
Figu e 3
US sa ing, in es men and he ade balance
Sou ce: Au ho s' calcula ions based on AMECO da a.
-10
-5
0
5
10
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
In es men - Sa ing Ne expo s
22.01%
-10
-5
0
5
10
15
20
25
30
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
P i a e sa ing Public sa ing
-4.16%
1.01%
-8
-6
-4
-2
0
2
4
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
To al Goods Se ices
a. The sa ing-in es men gap (% o GDP) c. T ade balance o goods and se ices (% o GDP)
b. Public and p i a e sa ings (% o GDP)
-3.15%
3.12%
-3.12%
-3.56%
In e economics 2025 | 4
232
In e na ional T ade
Fi s , i in es men con inues o ou pace sa ings, whe he
due o low household sa ing, la ge iscal de ici s, o bo h,
hen ade de ici s a e ine i able. The US canno educe
impo s wi hou changing he unde lying lows o capi al.
Second, e en i a i s succeed in educing impo s (which
is a om gua an eed), he only way o gene a e a ade
su plus would be o ei he inc ease sa ing o educe in-
es men . Howe e , he T ump Adminis a ion ne e p o-
posed policies ha would achie e ei he . Ins ead, i sup-
po ed ax cu s and pushed o mo e domes ic in es men .
Thi d, he d eam o “ win su pluses” – a sh inking budge
de ici and a sh inking ade de ici – is una ainable wi h-
ou ei he a sha p inc ease in household sa ing o a col-
lapse in in es men . Nei he ou come is likely, no would
ei he be desi able.
This is he “impossible heo em” o T ump’s ade policy.
I p omised a ade su plus in he sho un, wi hou he
inancial adjus men s ha such a su plus equi es. Ta i s
alone canno sol e a ade de ici ha is deeply oo ed in
s uc u al mac oeconomic o ces.
Finally, i is impo an o no e ha accoun ing iden i ies do
no explain wha happens when a i s a e imposed. They
do no ell us whe he sa ing will ise, o in es men will
all. Bu hey do de ine he bounda ies o wha is possible,
a leas in he sho un. In an economy like he US, whe e
consump ion and in es men d i e g ow h, he e is limi ed
oom o ade ebalancing wi hou ei he accep ing slowe
g ow h o implemen ing sweeping iscal e o ms.
Possible scena ios
Ta i s a ec he ade balance, na ional sa ing and in-
es men . Among he a ious possible u u e ou comes
o he US and he global economy, we desc ibe h ee
main scena ios as po en ial consequences o he in o-
duc ion o new Ame ican a i s.
Ta i s d i e e-sho ing. O he coun ies do no e alia e.
Sho un. A e a i s, impo s decline and expo s in-
c ease. The ade balance imp o es. Na ional income
ises in he US, boos ing bo h sa ing and in es men .
The e o e, he in e es a e inc eases. The exchange a e
app ecia es as well. Tax e enues ise due o highe do-
mes ic p oduc ion. In es men mus g ow by less han
na ional sa ing o ill he gap p e iously co e ed by o -
eign capi al.
Medium un. In la ion, ueled by a i s and in e nal demand,
educes he eal alue o incomes. Addi ionally, ising inpu
cos s ( om impo ed goods) and highe in e es a es (i he
FED esponds o in la ion) may educe in es men , con-
sump ion and employmen , possibly causing u he eal
app ecia ion o he dolla . The ou come o his scena io is a
a i d i en “s ag la ion”: a balanced (o e en su plus) ade
accoun , bu a he cos o a ecession. This is eminiscen
o Sou h Ko ea in 1998, when a ade su plus was achie ed
amid a deep economic and inancial c isis (K ugman & Ob-
s eld, 2021).
Ta i s d i e e-sho ing. O he coun ies e alia e.
Sho e m. In esponse o US a i s, o he coun ies im-
pose hei own a i s o o he o ms o non- a i ba ie s.
This would educe US expo s, unexpec edly wo sening
he ade balance and igge ing an economic slowdown.
Some (ex) ading pa ne s migh espond by de aluing
hei cu encies o egain expo compe i i eness. Such
dep ecia ion would make US goods mo e expensi e
ab oad, educing expo s and wo sening he US ade
de ici . This is he s a egy cu en ly adop ed by China.
The same pa h could be aken by Eu opean coun ies in
he absence o a sa is ac o y ag eemen .
Medium e m. Fo me US ading pa ne s may seek o
o m o s eng hen egional economic alliances o c ea e
sel -su icien ading blocs capable o wi hs anding US
ade p essu e. China could become he leading econom-
ic pa ne o hese coali ions. This scena io may po en ial-
ly esul in a mo e agmen ed global ade and inancial
sys em, wi h capi al and ade lows inc easingly pola -
ised ac oss egions. I may also lead o a edis ibu ion o
ade balances among non-US pa ne s (Casa ini, 2024).
Despi e a i s, i ms do no e-sho e. O he coun ies
e alia e.
Sho e m. I US i ms do no b ing p oduc ion back, he
coun y emains dependen on global supply chains, pa -
icula ly o goods, whose p ices a e now a i icially in la -
ed by a i s. In his scena io, he e ec i eness o a i s
in p o ec ing domes ic indus y p o es limi ed as global
alue chains a e oo in e connec ed o be quickly es uc-
u ed wi hou signi ican cos s. A p eceden occu ed in
2018, when a i s on Chinese impo s did no educe he
ade de ici bu me ely al e ed i s geog aphic composi-
ion, shi ing ade imbalances o o he coun ies (Figu e
4). The o e all e ec was a wo sening o he ade de ici ,
pa ly due o he decline in expo s. Domes ic p oduc ion
su e ed, while ade unce ain y inc eased inancial ma -
ke ola ili y and educed c edi o households and i ms.
Medium e m. Pe sis en poli ical and ade unce ain y
dec eases con idence among households and in es-
ZBW – Leibniz In o ma ion Cen e o Economics 233
In e na ional T ade
o s — bo h domes ic and o eign — leading o a decline
in in es men and a ise in p ecau iona y o ms o sa ing.
The US economy en e s a phase o s agna ion o e en
s ag la ion due o alling expo s, educed in es men
and ising cos s. US inancial asse s a e no longe seen
as a “sa e ha en”, causing in e es a es o ise, and pos-
sibly aising he isk o a public inance c isis. The Uni ed
S a es could become u he isola ed in a mo e uns able
global economic and inancial en i onmen . Ame ican
global leade ship could be called in o ques ion, as new
alliances and ade blocs eme ge as al e na i es o US
ma ke s and in luence.
US global ole and he MAGA doc ine
The p eceding analysis es s on he p emise ha , in he
sho un, any change in he ade balance mus be o se
by an adjus men in na ional sa ing, domes ic in es men ,
o bo h. To elimina e he ade de ici , he T ump Adminis-
a ion would need o implemen policies ha ei he boos
na ional sa ing o educe domes ic in es men . Highe
na ional sa ing could esul om lowe p i a e consump-
ion o a shi o a ede al budge su plus. Howe e , such
measu es a e la gely incompa ible wi h he Make Ame -
ica G ea Again (MAGA) agenda, which emphasises in-
c eased domes ic g ow h, in es men and consump ion
in he sho e m.
The a ac i eness o he Uni ed S a es as a des ina ion
o di ec in es men and i s s uc u al need o impo
capi al om ab oad o sus ain echnology ad ancemen ,
inno a ions and economic g ow h bo h con ibu e o he
widening o he ade de ici . This end has wo impo an
consequences. On he one hand, he in low o inancial
esou ces om ab oad suppo s Ame ican p oduc i i y
and income. On he o he , i exace ba es comme cial and
inancial imbalances, inc easing he coun y’s ne deb o
posi ion is-à- is he es o he wo ld.
Gi en he cu en s ance o he US go e nmen , ensu -
ing he medium- and long- e m sus ainabili y o he win
de ici s will equi e s uc u al e o ms ha enhance ade
lexibili y and expand access o global ma ke s o US
se ices. Howe e , as ou analysis has shown, a i s and
p o ec ionis measu es a e ill-sui ed o achie e hese
goals. Ra he han os e ing compe i i eness, such poli-
cies gene a e unce ain y in bo h inancial and eal ma -
ke s. Mo eo e , hey isk aliena ing key ading pa ne s,
who may inc easingly seek o es ablish al e na i e ade
alliances, po en ially cen e ed a ound China, he Uni ed
S a es’ p incipal s a egic and economic i al.
This las poin wa an s u he e lec ions. I has ecen ly
been obse ed ha i he objec i e behind he so-called
Ma -a-Lago Acco d was o diminish he global appeal o
he dolla (PIIE, 2025), ha goal may ha e al eady been
“inad e en ly” accomplished. Recen capi al ligh om
he dolla and US T easu y bonds, spu ed by T ump’s
p o ec ionis policies, sugges s a decline in in es o
con idence. His o ically, howe e , a cen al aim o US
ade policy has been he expansion o global ma ke s
o Ame ican goods and se ices, e en a he expense
o pe sis en ade de ici s. As De Cecco (2012) no ed,
he Whi e House has a ely p io i ised global ma ke
sup emacy o e na ional so e eign y. Fo o e se en y
yea s, he US has p esided o e he in e na ional eco-
nomic o de , wi h he dolla ’s ese e cu ency s a us
unde pinned no only by economic s eng h, bu also by
ins i u ional c edibili y and mili a y dominance. Wi hin
his impe ial ision, US policymake s ha e long ole a ed
bo h ade and iscal de ici s, unde s anding ha a nega-
i e ade balance is essen ial o ensu e he global ci cu-
la ion o he dolla .
Today, ha ision appea s inc easingly unde mined by
T ump’s agenda, which signals no only a po en ial end
o he pos wa US-led economic o de , bu also a possi-
ble shi in global leade ship. De-dolla isa ion is no longe
an academic p ospec . I is becoming a angible eali y,
d i en by moun ing global mis us o unila e al Ame ican
a i s, he enewed push o mone a y so e eign y among
eme ging economies and he accele a ing impac o ech-
nology and inno a ion.
In his con es o global economic p imacy, China has
eme ged as he p incipal challenge o US dominance.
Chinese expo s now each i ually e e y co ne o he
globe, o ging new ade linkages, e en wi h adi ional
Figu e 4
US bila e al goods ade de ici s (% o o al)
No e: Change in ade lows ollowing he 2018-2019 a i s.
Sou ce: Au ho s’ elabo a ion based on BEA da a.
-10
0
10
20
30
40
50
60
70
80
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
%
Eu opean Union
China
Canada
Mexico
Res o he wo ld
In e economics 2025 | 4
234
In e na ional T ade
US pa ne s in Eu ope, while China’s own domes ic de-
mand o o eign goods emains limi ed, he eby ailing
o o se he pe sis en US ade de ici . Beijing’s s a -
egy is no me ely comme cial; i is deeply geopoli ical.
The s uc u al imbalance in global ade is exace ba ed
by a g owing eliance on Chinese indus ial inpu s, pa -
icula ly in high- ech sec o s, and by China’s subs an ial
holdings o US T easu y secu i ies, es ima ed a $700 bil-
lion. I is no coincidence ha China ecen ly announced
he ull in eg a ion o i s digi al cu ency, he digi al yuan,
in o in e na ional paymen sys ems. The digi al enminbi
is al eady being used in c oss-bo de ansac ions wi h
en ASEAN na ions and six coun ies in he Middle Eas .
As a esul , mo e han 38% o global ade could po en-
ially be conduc ed ou side he SWIFT ne wo k, and c i i-
cally, wi hou eliance on he US dolla . This is mo e han
a echnology inno a ion: i is a s a egic change. Beijing is
ac i ely cons uc ing pa allel inancial a chi ec u e ha is
as e , cheape and, mos impo an ly, au onomous om
he dolla -based sys em.
Wha would happen i he dolla we e o expe ience a
signi ican de alua ion? E en hough such a de alua ion
migh quickly elimina e he ade de ici , by shi ing con-
sume demand om impo ed goods and se ices o do-
mes ic al e na i es, i would o e hea US labou ma ke s.
The combina ion o ising wages and a alling dolla would
uel in la ion. The Fed would espond by aising in e es
a es, cu bing US g ow h. A apid change in he eal al-
ue o he dolla and ising in e es a es would inc ease
inancial ma ke ola ili y, wi h spillo e e ec s on c edi ,
consump ion and in es men bo h in he US and global
economy.
The e o e, a eal dep ecia ion o he dolla alone would
no place he ade balance on a sus ainable ajec o y.
Wi hou s uc u al adjus men s in he Uni ed S a es (spe-
ci ically, a shi in he balance be ween na ional sa ing
and in es men ) and s onge ex e nal demand o US
expo s, a sha p dep ecia ion could se o a dange ous
cycle. While he ade de ici migh na ow empo a ily,
i would soon widen again as unde lying imbalances e-
su ace, now ampli ied by heigh ened inancial and c edi
ins abili y.
O e he pas wo decades, US ade de ici s ha e ex-
panded in andem wi h obus domes ic economic g ow h
and he eme gence o China as a global economic powe -
house. As long as globalisa ion ueled US p oduc i i y and
he coun y emained he ancho o in e na ional ma ke s,
hese de ici s we e b oadly iewed as sus ainable. Today,
howe e , pe sis en in e nal and ex e nal imbalances in
he US economy, coupled wi h China’s inc easing domi-
nance in global ade, inance and paymen sys ems, a e
con ibu ing o a mo e agile in e na ional en i onmen . In
his con ex , bo h poli ical and ma ke sensi i i ies o con-
inued US ade de ici s may igge c ises o con idence
in Ame ican iscal and ex e nal s abili y, pa icula ly in he
absence o c edible leade ship and a coo dina ed global
s a egy o ade ebalancing.
Failu e o add ess he poli ical and s uc u al challenges –
bo h domes ically and in e na ionally – aises he isk ha
he e en ual adjus men o he US ade imbalance will be
ab up , cos ly and dis up i e o he global economy.
Re e ences
Blancha d, O. (1987). Reaganomics. Economic Policy, 2(5), 15–56.
Blancha d, O. (2024). Mac oeconomics (9 h edi ion). Pea son Educa ion.
Casa ini, N. (2024). The Fu u e o he Bel and Road in Eu ope: How Chi-
na’s Connec i i y P ojec is Being Recon igu ed ac oss he Old Con-
inen –and Wha I Means o he Eu o-A lan ic Alliance. Is i u o A a i
In e nazionali (IAI). IAI Pape s, No. 24/02.
Chad, P., & Zhang, Y. (2019). Measu ing ump’s 2018 ade p o ec ion: Fi e
akeaways. Pe e son Ins i u e o In e na ional Economics (PIIE).
Da is, J. (2011). The economic s imulus, heal h ca e, and inancial e o m:
E alua ing p esiden Obama’s legisla i e agenda. In The Ba ack Oba-
ma P esidency: A Two-Yea Assessmen (pp. 31–46). Sp inge .
De Cecco, M. (2012). Global imbalances: pas , p esen , and u u e. Con-
ibu ions o Poli ical Economy, 31(1), 29–50.
Fu man, J. (2025). Does ump know wha he wan s om Eu ope o how
o ge i ? In e economics, 60(3), 138–142.
G os, D. (2025). T ansa lan ic economic ela ions in a T umpian wo ld. In-
e economics, 60(1), 2–3.
K ugman, P., & Obs eld, M. (2021). In e na ional economics: Theo y and
policy (12 h edi ion). Pea son Educa ion.
Mann, C. (1999). Is he US ade de ici sus ainable? Pe e son Ins i u e.
Mille , S., & Russek, F. (1989). A e he win de ici s eally ela ed? Con em-
po a y Economic Policy, 7(4), 91–115.
Obs eld, M. (2025). The us ade de ici : My hs and eali ies. B ookings
Pape s on Economic Ac i i y.
PIIE. (2025). Does changing he ade egime change he dolla egime? To
Ma -a-Lago and beyond.
T a aglini, G. (2024). The US-I aly economic ela ion o e he las dec-
ades. Is i u o A a i In e nazionali (IAI). IAI Pape s, No. 24/12.
Yo k, E., & Du an e, A. (2025). T ump a i s: T acking he economic impac
o he ump ade wa . Tax Founda ion.
