When any country in the world wants to buy oil from the Middle East, it needs to pay with US dollars. Where would the US dollars come from? You trade with the US using any merchandise other than US dollar, of course. Once you have the US dollars, you can then buy oil from the Middle East. Of course, you can also buy shirts from China, or cars from Japan, all in US dollars. These US dollars are not going back to the US, for sure. Because they are needed for international trade with countries other than the US. As the world economy grows bigger and bigger, more and more US dollars are needed to circulate outside of the United States. The only way that this can happen is that the US runs a bigger and bigger "trade deficit".
Notice that the US trade deficit chart agrees with the fact that starting from the early seventies, the values of exported goods as share of GDP for the entire world started to rise drastically.
Here is one interesting thing that happened in 1973 (http://www.thepeoplehistory.com/1973.html):
US exports the US dollars, just like any other merchandise. It is a commodity. No other currency has this status because no other can be used for international trade this way. Once you understand this, and you accept the fact that the US dollar is a unique commodity that can be traded like any other merchandise, you will see that US does not have an international trade imbalance after all.
What would happen if US eliminates its trade deficit, i.e., no longer exports US dollars? As the world economy grows, there will be a shortage of US dollars on the international market. Like with a shortage of anything else, two things will happen:
- People will look for substitutes
- Its price will go up before substitutes are found. After a substitute is found, its price will drop.
When people find substitutes, US dollar will lose its international trade currency status. US will lose all of the perks that came with it, such as the controlling power of the international banking system, for example. Then the value of the US dollar will collapse. Because once it loses the international trade currency status, it will have far less value. Its only remaining value will be for buying merchandise from the US. Then the American people will really have to work hard for it. Just imagine, if you are having a hard time when you can just print value on paper, how hard would it be when you can no longer do that?
Many countries have been seeking substitutes of the US dollar for years. Japan wants to use Japanese Yen, EU wants to use Euro, and China wants to use Chinese Yuan. None succeeded because the cost of doing business with US dollars is always cheaper. Now with the help of Mr. Navarro, things just might tip to the side of Japan, or the side of China, or the side of EU.
Because the international trade deficits are actually balanced with the export of US dollars, there has been an influx of wealth in other commodities for the last forty some years, equal to the international trade deficits. If you have been worse off, or if you are not better off as much as you think that you should have been, you need to examine the wealth distribution system of the US in that time frame. Where did the wealth go? The cost of printing (producing) US dollars as a commodity for export should be close to zero, right? Do we really have to resort to letting Uncle Sam doing the actual importing with the dollars that it prints to be convinced of that?
If the wealth distribution system does not work right, trade or no trade, you have a problem.
