The U.S. Trade Deficit Isn’t Caused by Low American Savings

by Michael Pettis
Financial Sense

Economist Joseph Stiglitz recently published an interesting piece in Project Syndicate called “The US is at Risk of Losing a Trade War with China.” I am always surprised by claims that deficit countries like the United States stand to lose more from a trade war than surplus countries (that is certainly not what history suggests). I suspect it is because many commentators just do not understand why China is so susceptible to a trade war and why Beijing is so worried. Otherwise, I agree with much of what Stiglitz says about tariffs in the article (as I usually do). This includes the article’s main point—that tariffs are likely to have a limited or even adverse impact on U.S. and Chinese overall imbalances, even if they ostensibly improve bilateral imbalances. His article begins by saying this:

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