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Anthony W.D. Anastasi

Earlier this month, the US Democrats, whom many had written off, swept the local and state elections. From Zohran Mandani becoming New York mayor and Abigail Spanberger becoming Virginia governor to two statewide wins in Georgia’s public service commissioner races, the Democrats had a good run. The winning message was, ironically, what lost them the last presidential election: affordability.
President Donald Trump has since sounded the alarm that Republicans must reclaim the issue of affordability. He has proposed a 50-year mortgage and a cheque of at least US$2,000 for every American not on a high income.
The absurdity of a 50-year mortgage aside, the cheques, to be funded by his tariffs, would be counterproductive to a goal Trump has held since the 1980s: balancing the trade deficit.
Alongside affordability and balanced trade, Trump has long held a third economic goal: a booming stock market. But these three goals are structurally at odds with one another. At most, the United States can expect to have two in the short to medium term.
Trump has his impossible trinity for now because of imbalances in the international trading system and financial flows. Simple macroeconomic accounting shows us why.


Gross domestic product is the sum of a country’s consumption (including that of households and the state) and total savings; this also represents a country’s domestic production. A country’s domestic demand, meanwhile, is the sum of total consumption and investment. The difference between a country’s domestic demand and domestic production – a difference also known as the trade balance – is simply the difference between a country’s total savings and investment.
Countries that save more than they invest domestically will run a trade surplus. However, since they have surplus savings, they will also need to buy assets abroad to correct this imbalance, leading to a capital account deficit, meaning more financial capital is flowing out of the country than in.
Countries that accept more financial capital than they send abroad will run a capital account surplus, yet because this flow of capital means an investment rate above the savings rate, they will also run a trade deficit.
The US has run a trade deficit since the 1980s at least, which by definition implies a persistent capital account surplus. Put simply, Americans received surplus goods from abroad by trading their surplus financial assets. Thanks to the strong dollar this created, Americans got relatively cheap goods abroad and higher asset prices at home.
The fact is that America’s overvalued dollar and trade deficit helped to keep supermarket prices low and stock market prices high. If Trump closes the US trade deficit, one of two things will result: higher goods prices or lower asset prices.

Let’s start with higher prices. Recall that a trade balance is simply the difference between a country’s total savings and investment. The Trump administration’s preferred policy tool for closing its trade deficit is tariffs. This is broadly a transfer of income from net importers, namely households, to the state and net exporters, namely businesses. This shift lowers consumption, raises savings and thus improves the trade balance.
Yet tariffs also make products that households buy more expensive, and in some cases, even domestically produced ones. This is because tariffs could affect the imported inputs used to make consumer goods, even as rising prices elsewhere in the economy allow domestic producers using domestic parts to raise prices.
Secondly, lower asset prices. Trade-surplus countries need to buy assets abroad to assuage their domestic imbalances. About half of the world’s surplus savings flows into the US to buy its financial assets. Foreigners buying American assets cause the rift between investment and savings to grow larger, resulting in a larger trade deficit.
The US could tax foreign inflows of financial capital. This would directly reduce the amount of US assets foreigners could buy, as part of the excess savings flowing into the US would go to the government, yet it would have an indirect impact as well because the payoff for buying US assets would shrink, lowering their demand.

But this tax would also lower asset prices, as there would be fewer buyers of American financial assets. To meet its savings needs, America would need to save more and consume less in the face of lower asset prices, leading to an improvement in the trade balance.
Very recent history shows that, if not managed correctly, the US can end up with only one of the impossible trinity – or none. Since the start of the Covid-19 pandemic, the US has really only had one: a booming stock market. The US has indeed run a persistent trade deficit for structural reasons, but there were also cyclical reasons that caused inflation.
When inflation was a global crisis, policies and pandemic-era stimulus in the US tilted the balance even further, causing inflation to spike, undercutting affordability and yet doing little to address the trade imbalance.
If Trump really does try to close the trade deficit while promising cheap goods and high asset prices, he’ll either fail or succeed at the cost of devastating inflation or a market crash. The truth is stark: America’s economic and trade contradictions have been papered over for decades by foreign capital and cheap imports. Trump’s vision for balanced trade will need someone to foot the bill: either non-rich Americans or Wall Street. No amount of political branding or populist flair will change that maths.


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Trump wants to close the trade deficit while promising cheap goods and high asset prices. The cost? Devastating inflation or a market crash


Trump wants to close the trade deficit while promising cheap goods and high asset prices. The cost? Devastating inflation or a market crash.


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Trump can’t have it all: low prices, booming stocks, balanced trade

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Trump wants to close the trade deficit while promising cheap goods and high asset prices. The cost? Devastating inflation or a market crash

Trump wants to close the trade deficit while promising cheap goods and high asset prices. The cost? Devastating inflation or a market crash