Complexity of Trade
International trade incorporates many interrelated exchanges.
Introduction
I have argued rather strongly that the phrase "trade deficit" has no significant meaning. The fact that one party in a transaction gets goods or services and the other receives some form of money does not mean that either party is getting "ripped off." Much of this misunderstanding stems from a lack of understanding about the complexity of global trade. I will present a straightforward explanation of the complex process of trade between companies located in different countries.
Global trade consists of a network of exchanges far too complex to explain in detail. Global trade involves a multitude of countries and an inconceivably large number of products and services. I will give you an oversimplified model that should help you think more broadly about the process of international trade. Please refer to the graphic below.
As a citizen of the United States, I have placed the USA at the center of this diagram. This process, however, remains true for any country worldwide.
For this simple model, I've included countries labeled A, B, C, D, and E. I've chosen not to use specific country names, focusing instead on the process rather than the parties.
To begin this process, a company in the USA buys a product from country A and pays for it with U.S. dollars. Some of those dollars were returned to the United States in payment for various other products or U.S. government securities.
The company in country A, which received U.S. dollars, purchases another product from country B. The seller, located in country B, agrees to accept U.S. dollars as payment. The fact that different companies accept U.S. dollars as payment demonstrates why the U.S. dollar has been considered the world's reserve currency.
The company in country B uses the dollars it received to purchase products from a company located in country C. They might also use U.S. dollars to buy a good or pay for a service from the USA.
Without going any further, I think you can see that the dollars flow around the system, being used to purchase goods and services from various countries that accept U.S. dollars as payment. You can imagine that, with hundreds of countries, thousands of businesses, and millions of products, this system, although composed of simple individual transactions, becomes a highly complex system in combination.
Over time, through the purchase of goods and services, as well as U.S. government securities, most of the dollars given in the initial exchange eventually return to the USA. The number of dollars returned to the USA, however, does not have the same purchasing power as the dollars involved in the original transaction.
Monetary expansion finances a significant portion of the U.S. budget deficit. Because of the expansion of the money supply in the USA purchasing power of the dollars already in the system becomes lower and lower. The misallocation of resources that occurs as a result of monetary expansion in the USA also happens throughout the global trading system.
Conclusion
This simple model illustrates that, over time, international trade involves much more than two-party transactions. The number of dollars in circulation can travel through several countries before returning to the USA.
The system of global trade would work rather smoothly if the quantity of dollars always remained the same. But it does not. The U.S. government uses monetary expansion to pay for much of the government's ever-growing "spending." The increase in U.S. dollars distorts dollar prices in all markets that use the U.S. dollar.
If the President and Congress truly have concerns about people being taken advantage of, perhaps they should look in the mirror.