American trade deficit game is simply brilliant
The American trade deficit with China not only works to its benefit, but is also intentional and planned. An illustration of how this works by using the latest issue of US$600b may help to make the game plan clearer. US$600b can buy a lot of stuff especially from China where the cost of goods is very cheap. Think of what the Americans could buy with that kind of money. All the goods made in China ended in America to be enjoyed by the Americans. The Chinese ended with US$600b of paper notes in exchange. The Chinese could go to America with the same money to buy American products. The American will sell some to them, say US$100b. So China ended up a trade surplus of US$500b. Looks pretty good. But what can China do with this money if it can’t buy things from the Americans? The US$500b becomes money on paper but worthless in real terms. To continue to deceive the Chinese, the Americans told the Chinese that they could buy American Treasury Notes or IOUs which pays a good interest rate. The US$500b will then be returned to the Americans in exchange for another form of worthless notes. The Americans do not mind paying whatever interest as it will be a small fraction of the US$500b. When the Treasury Notes or IOUs are due, the Americans will sell the Chinese more notes or IOUs a second time and on and on. In effective or real terms, the Americans are printing money to buy real goods from the Chinese, and the more the better, and all they have to pay are worthless notes worth the weight of the piece of paper it printed on. And the Chinese can only look at their monthly statements showing how much the Americans owed them, and they can smile and smile and smile. That is about all they benefit from the exchange. Now comes the best part. The Americans can then accuse the Chinese for chalking huge surpluses or imbalance of trade. And the fault is with the Chinese. The Chinese is causing the problem, selling more and buying less. In the meantime the Americans got to enjoy all the goodies the Chinese produced while the Chinese got useless paper notes in the bank accounts, and cannot translate them into real stuff.