Name: “Most People Have No Idea What’s Trade Deficit"
Uploaded: 2025-07-30T18:08:19.000Z
Duration: 20 min 58 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

The imperative

Look at these two graphs, one of them is an existential threat to the United States while the other is the greatest source of American wealth.

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Most of the media is being focused on trade deficit.

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But what if I told you that everything you know about trade deficit is most likely wrong.

Everything that the media is telling you about trade deficit could not be further from reality.

Because trade deficit is what makes the United States so enormously rich.

Fixing this problem is only making United States poorer.

But to understand that, you have to understand how global trade works.

When you are trading inside a country, such as China, you can use the local currency.

If you are in Brazil, you can use the local currency.

If you are in the US, you will use the US dollars.

But when the two countries trade with one another, they do not recognize the currencies of one another.

Because outside the borders of that country, that currency is meaningless.

I don't know what currency they have, but nobody would want the Brazilian currency outside Brazil.

So when Brazil trades with China, the Middle East, or the rest of the world, other countries will demand from Brazil something in return, something valuable, such as goods or services.

If that's how international trade works, then why is China selling so much to the United States in exchange China receiving so much dollars?

They are not demanding something real from the United States, such as American cars, American technology, American services.

Why is China ready to accept trillions of dollars without actually getting real value in return?

That does not make sense according to what you have just explained how international trade works.

To understand that, you have to understand what is the trust level between other countries.

And America holds a very unique position in the world.

If China wants to trade with Brazil, for example, they are going to demand goods and services from one another.

But what if China wants to sell something to Brazil, or Brazil wants something from China, but Brazil has nothing to offer to China?

How these two countries are going to trade between themselves?

They are not going to trade between themselves because Brazil does not have something that China has.

But in order to make this transaction possible, we have created the US dollar.

And that's the value that the dollar gets it into the picture.

Since the dollar is the global reserve currency, China does not necessarily have to get real goods and services from Brazil.

As long as Brazil can give China the US dollars, China is ready to give them the goods and the services.

Because the dollar plays the function of the reserve currency.

China can take those dollars and exchange them for oil and gas from middle east.

Middle eastern countries would gladly accept the dollars because they know that using these dollars they can buy other things from all across the globe.

But that's not the status that every currency enjoys around the globe.

So that is the value that the dollar provides for the rest of the world.

And that's why other countries will gladly sell to the US real goods, real cars, agricultural products, steel, and a long list of other products to the US in exchange for green pieces of papers.

Because they can take those pieces of papers and exchange them for other goods.

Which makes the US main export, the US dollar.

Because US dollars can be used internationally.

And that's the leverage that the US has against the rest of the world.

Other countries such as China have to produce EVs.

They have to invest in making steel so cheap so that they beat the competition across the globe.

Because other countries are gladly selling their cheap steel to the US for exchange the US dollars.

And how much does it take the US to print those dollars?

But today there are simply digits in the computers.

So if you want to have the global reserve currency, then you must run a deficit.

If you are not running a deficit, and your currency is a reserve currency.

Now a reserve currency means that other countries, instead of using their own currencies, they use your currency to trade between themselves.

Since one country doesn't have what the other has.

So they still want to trade between themselves.

And if you are going to fix the trade deficit, then there is going to be a limited supply of the dollars in the market and these two countries will no longer be able to trade between themselves.

And the dollar, first of all, will stop being the global reserve currency.

So running a trade deficit is a great advantage for the US.

Secondly, it provides the US with the global dominance on the banking.

If two countries want to transfer US dollars between one another, usually they will use an intermediary bank and that intermediary bank is the US bank.

Because the dollar is a US currency and the US has complete control over it.

Which is why, if you look at the entire global financial system, every country that uses the dollar has US banks within themselves.

But why can't China simply buy from the US as much as the US is buying from China?

China buys from the US around half a trillion dollars while China buys from the US around 100 billion dollars.

Why can't simply they just buy from the US as much and we have solved the problem?

First of all, China is not as rich as a lot of people think.

The average Chinese is much poorer than the average American.

The GDP per capita in the US is around 90 thousand dollars while the GDP per capita in China is around 12 to 13 thousand dollars.

But since there are far more people in China, the Chinese economy is so huge and so large.

But if you look at the details, the average Chinese is much poorer than the average American.

So even if they wanted so, they cannot buy as much from the US as Americans are buying.

Secondly, China does not have the global reserve currency.

China would like its currency to be the reserve currency and China does not have to produce cheap steel, cheap electrical cars to sell them to the rest of the world.

And the rest of the world will simply sell their goods and services to China for Chinese Yuan.

But because they don't have that status, they have to work hard to compensate for that.

While the US has the global reserve currency which allows it to get those stuff at a fraction of the price that China is doing.

In fact, it allows the US to get those goods for almost free and exchange some digits in the computers.

If China does not have that advantage, it's not their fault, it's the US that must be grateful for the advantages of the reserve currency and not blame China for not having the reserve currency.

Thirdly, why are we so mad that China is trying to get rich?

Yes, China is actually producing those goods at a fraction of the price and they are trying to beat the competition.

They are trying to produce electrical cars at a fraction of the price that Tesla is doing.

They are trying to massively invest in steel so that they can actually produce that steel at a fraction of the price.

So American car companies can buy that steel and lower down their prices further.

Is it really bad that another country is trying to get rich?

Is it really bad that another country, while not having the advantages of the US, is still working hard to build something and bring value and add value to the global economy?

Yes, they are making real progress, but they deserve it.

And we have to be very grateful that there are so many people working so hard producing those stuff.

The question you should be asking yourself is that, what will China do with so many dollars if they buy so much goods from America?

China is selling so much in the United States and as a result of that, they have accumulated hundreds of billions, in some cases, trillions of dollars of American US dollars.

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“Most People Have No Idea What’s Trade Deficit"

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