Do trade deficits matter?

Summary

Planet Money: Do Trade Deficits Matter?

Episode Release Date: April 9, 2025
Host: NPR's Planet Money Team (James Surowiecki and Jeff Guo)

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Introduction

In the April 9, 2025 episode of Planet Money, hosts James Surowiecki and Jeff Guo delve into the complex world of trade deficits. Amidst President Trump's sweeping tariff announcements targeting nearly every country, the episode explores whether these trade deficits are a cause for concern or merely an economic balancing act. Through insightful discussions, expert interviews, and real-world examples, the hosts aim to demystify the concept of trade deficits and their implications for the U.S. economy.

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The Tariff Conundrum

The episode kicks off with James Surowiecki sharing a personal anecdote about his love for Sumatran coffee—a product indirectly affected by the new tariffs. He highlights the bewildering nature of the tariffs imposed by the Trump administration, which target goods the U.S. doesn't typically produce domestically.

"One of the bizarre things about these tariffs is they're imposed on goods that we are never. The United States can't make."
— James Surowiecki [00:29]

James questions the logic behind the 32% tariff on Indonesia, noting discrepancies in how these rates align with actual trade barriers. His investigation reveals that the administration's methodology ties tariffs to the U.S. trade deficit with each country, rather than reciprocal trade barriers.

"We're putting a 32% tariff on imports from Indonesia because they say Indonesia's tariff rate is 64%."
— James Surowiecki [01:08]

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Listener Inquiry: Understanding Trade Deficits

As the episode progresses, listeners' concerns surface through a question from Don Randall in Seattle:

"Why are [trade deficits] important? What do they mean for us? [...] When I balance a checking account, being out of balance has a bad consequence. Is that true for trade deficits?"
— Don Randall [07:42]

This prompts the hosts to break down the fundamentals of trade deficits for their audience.

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Demystifying Trade Deficits

Using a simplified hypothetical scenario, James and Jeff explain trade deficits:

Imagine a world with only two countries—The United States of America and The Republic of Foreignlandia. The U.S. imports $1 million worth of mittens from Foreignlandia but only exports $500,000 worth of "nerd clusters." This imbalance results in a $500,000 trade deficit for the U.S., meaning Foreignlandia holds the excess U.S. dollars.

"If they only want $500,000 worth of nerd clusters, we've got ourselves a trade deficit."
— James Surowiecki [08:59]

In reality, the U.S. engages in trade with numerous countries, often running trade deficits due to its role as a global consumer and the nature of international trade dynamics.

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Expert Insights with Ken Rogoff

To provide deeper analysis, the hosts consult Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the IMF.

"Trade deficits can be a sign of bad things, like maybe your economy is consuming too much stuff or your economy isn't making anything that people want to buy. But a trade deficit can also indicate that good things are happening for us."
— James Surowiecki [22:56]

Ken Rogoff elucidates that trade deficits are reflective of where U.S. dollars flow globally. When the U.S. imports more than it exports, the surplus dollars end up being invested back into the American economy through banks, stock markets, startups, and government debt.

"Ken says, 'Most of the time the trade deficit isn't the most useful metric.'"
— Jeff Guo [19:45]

Rogoff emphasizes that a trade deficit can coexist with a healthy, growing economy, especially when foreign investments support domestic growth initiatives.

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The Flow of Dollars: Investment and Economic Health

The discussion transitions to the destination of the excess U.S. dollars held by foreign entities. These dollars often find their way into U.S. financial markets, contributing to the rise in asset prices and overall economic wealth.

"Other countries are eager to buy our government debt to lend to us at low rates."
— James Surowiecki [20:32]

Rogoff points out that the investment of foreign dollars can lead to lower interest rates for the U.S. government and businesses, fostering an environment conducive to growth and innovation.

However, the hosts also acknowledge the trade-offs. While investments from abroad can stimulate certain sectors, they may also contribute to economic disparities, benefiting those who own assets while disadvantaging those who do not.

"It's been great for companies and people who own stocks and bonds, but if you don't own any of that stuff, maybe that's not great for you."
— Jeff Guo [22:28]

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Trade Deficits: Diagnostic Tools Rather Than Direct Indicators

Rogoff suggests viewing trade deficits as diagnostic tools that provide insights into the broader economic landscape rather than standalone indicators of economic health.

"Think of your body [...] a sudden change might mean something's wrong. But if it's just daily aches and pains, it's probably fine."
— James Surowiecki [25:31]

The episode recounts historical instances, such as the surge in the trade deficit around 2005, which foreshadowed the housing market's vulnerabilities leading up to the 2008 financial crisis. This underscores the importance of understanding the underlying factors that drive trade deficits.

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Conclusion: Nuanced Perspectives on Trade Deficits

James and Jeff conclude that trade deficits are neither inherently good nor bad. Their impact depends on the underlying economic activities they represent. A trade deficit can indicate robust consumer demand and foreign investment inflows that fuel economic growth. Conversely, it might also signal structural issues like declining manufacturing sectors or excessive consumption.

"A trade deficit can be a sign of bad things... But a trade deficit can also indicate that good things are happening for us."
— James Surowiecki [22:56]

The episode emphasizes the complexity of global trade dynamics and the necessity of a nuanced approach when evaluating trade deficits. Rather than viewing them in isolation, it's essential to consider the broader economic context and the flow of investments that accompany these deficits.

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Key Takeaways:

• Trade Deficits Explained: A trade deficit occurs when a country imports more goods and services than it exports, resulting in an outflow of domestic currency to foreign entities.

• Investment Implications: Excess dollars from trade deficits are often invested back into the domestic economy, supporting financial markets, government debt, and business expansion.

• Economic Health Indicator: Trade deficits can signal both positive aspects like strong consumer demand and negative aspects such as declining domestic industries.

• Historical Context: Past fluctuations in trade deficits have provided insights into larger economic trends and vulnerabilities.

By unraveling the intricacies of trade deficits, Planet Money equips listeners with a deeper understanding of how international trade shapes the U.S. economy and why these deficits may or may not pose significant concerns.

Transcript

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[James Surowiecki]

James Surowiecki is an economics writer for the Atlantic and a lover of one particular imported good.

I drink coffee. I like Sumatran coffee.

[Jeff Guo]

He buys his coffee from Indonesia. So last week, when President Trump announced surprisingly high, surprisingly broad tariffs on almost every country in the world, including Indonesia, James thought of his coffee.

[James Surowiecki]

One of the bizarre things about these tariffs is they're imposed on goods that we are never. The United States can't make.

To be fair, Hawaii does make coffee, but it's not even close to enough. So a new tariff on Indonesia means James's coffee is going to cost more. And James was looking at this new tariff, it was 32%, and wondering, how did they come up with that number? So he sets out to see if he can figure it out.

We're putting a 32% tariff on imports from Indonesia because they say Indonesia's tariff rate is 64%.

They said the Trump administration had said these new tariffs were reciprocal. They were supposed to be the combination of the tariffs a country charges us plus whatever other trade barriers they have on, like regulations or fees. And, and the Trump administration said Indonesia was effectively charging us 64%.

[Jeff Guo]

But those numbers, they just did not seem right. And not just for Indonesia.

[James Surowiecki]

So I don't know, Vietnam at 90% or South Korea at 50%. And if you knew anything about the global trade regime, you knew those numbers just seemed totally out of whack.

[Jeff Guo]

Totally out of whack. Because Indonesia does not actually charge the U.S. a 64% tariff. It does have a tariff on U.S. imports of less than 10%. And it does have other trade barriers. Like people selling goods to Indonesia have to pay inspection fees. They have to get their food and beverage imports certified Halal.

[James Surowiecki]

But the cost of those barriers, no reasonable calculation can get you to an additional 50%.

So it was like, okay, that doesn't make any sense. What's happening here?

[Jeff Guo]

So James is like, let me see something. Is there something else here? Is maybe there a different kind of math going on?

[James Surowiecki]

So then I just started messing around with numbers. Like, well, is it some, I don't know, does it have something to do with our, its relationship to GDP and, or is it like imports divided by total trade or, I don't, whatever.

And Excel?

No, I was just doing. No, I was literally just doing it. Like with the calculator on my computer. I mean, these are, like, simple numbers.

And James starts plugging in numbers to do with our imports and exports. He looks at how much does the US Import from this country versus how much do we export to it? Our trade deficit.

Okay, wait, trade deficit. All right, then divide it by total trade. You know, imports, and. No, that's not it.

[Jeff Guo]

Our trade deficit is the difference between how much we import and how much we export. And that includes both goods and services.

[James Surowiecki]

Yes. So stuff we make and buy and sell, but also invisible stuff. Services like banking and management consulting. Consulting and Netflix. And James randomly tries excluding services from his calculations, which, honestly, is kind of a weird.

The logic of it is a little weird. And then it was like, oh, yeah, 64%.

64%. He arrived at the magic number that the Trump administration had assigned to Indonesia.

I only checked, like, three. I did. I did Indonesia, I did South Korea, and I did Vietnam. Because, like, Vietnam, it was 90%. So it was like, whoa. And then you actually looked at Vietnam and you realized, oh, yeah, actually, we really do have a huge trade deficit with them.

[Jeff Guo]

James had discovered the basic calculation behind these tariffs. They were trade deficit divided by imports, but only imports of goods, apparently.

[James Surowiecki]

And later that night, the Trump administration released their formula that basically confirmed that they had calculated these tariffs with the goal of closing our trade deficits with every single country. James's suspicion seemed to be right. These weren't just matching any trade barriers other countries had on us. They weren't just reciprocal. They were about trade deficits.

[Jeff Guo]

For decades, Trump has railed against trade deficits, says that other countries are taking advantage of us by selling us a lot of their stuff, but not buying as much of our stuff in return.

[James Surowiecki]

I think that he, in his ideal world, wants to get rid of every trade deficit we have with every single country in the world.

Fam. Is that bad? Are we cooked?

[Jeff Guo]

In the wake of the tariff announcements and the subsequent panic surrounding us, we got a lot of questions from you, our listeners. Hello, and welcome to Planet Money.

[Mary Childs]

Hello, and welcome to Planet Money. Hello, and welcome to Planet Money.

[Jeff Guo]

I'm Jeff Guo.

[James Surowiecki]

I'm Mary Child, and we are here to answer your biggest questions today on the trade deficits.

[Mary Childs]

Why are they important?

[James Surowiecki]

What do they mean for us? This was the thing that everyone wanted to know about. So what are they? Do trade deficits matter? And why would a person, a president, want to close them?

[Mary Childs]

And are other countries really ripping us off?

[James Surowiecki]

Let's find out.

[Mary Childs]

Yeah.

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[Jeff Guo]

This episode on Wednesday, we are less than one day into a new world of big tariffs. They went into effect after midnight, one week after President Trump held up a poster board with all these shockingly high tariff numbers. And things escalated incredibly quickly from there. Europe and China announced their own new retaliatory tariffs on us. Then we added another new tariff on China. Importing stuff from China is now going to be twice as expensive.

[James Surowiecki]

And then literally after we wrote that last paragraph that Jeff just read, Trump announced a whole new pause on some of the biggest tariffs for 90 days, except for China, who will have an even higher tariff than the one we just mentioned.

[Jeff Guo]

Okay, so we have to draw a line as we write this. It is 1:36pm Eastern on Wednesday, April 9. That is where the tariffs stand. It may well change by the time you're hearing this.

[James Surowiecki]

So the bottom line is after the first announcement of tariffs, the stock market absolutely tanked. It's feeling better now. Everyone From Bankers and CEOs of retail companies and prime ministers to my personal group chats, people everywhere were freaking out about these tariffs.

[Jeff Guo]

And as all of this was kicking off, listener Don Randall in Seattle wrote in to us.

[Mary Childs]

I thought, well, you know, here's a question I have. I'm bet other people have it, but.

[James Surowiecki]

I had no idea that you guys.

[Mary Childs]

Would write right back. So that was a huge surprise.

[James Surowiecki]

I've been waiting for you, Don.

[Jeff Guo]

Don wanted to know, actually a lot of people wanted to know about trade deficits.

[Mary Childs]

So my question is why are they important?

[James Surowiecki]

What do they mean for us?

[Jeff Guo]

You know, when I balance a checking.

[Mary Childs]

Account, being out of balances has a bad consequence. Is that true for trade deficits? And are other countries really ripping us off?

[James Surowiecki]

Okay, so that's actually a lot of questions. We will take them in sort of that order. First off, On a very basic level, what even is a trade deficit?

[Jeff Guo]

Yeah, and the easiest way to think these things through is with a hyper simplified imaginary example. So let us imagine that there are only two countries in the world, the United States of America and the Republic of Foreignlandia.

[James Surowiecki]

Foreign Landia, you should know, is really good at making mittens. They have vast natural mitten resources and we don't have any of that in.

[Jeff Guo]

The US So we start trading. Say we order a million dollars worth of mittens from Foreign Landia, they ship us the mittens and we hand over suitcases for full of dollars, US dollars.

[James Surowiecki]

And in this bilateral world, Thornlandia is going to want some of our stuff too. Let's say. I don't know, they love American made nerd clusters, the very popular candy made right here in Chicago. Now if the Foreign Landians spend as much money buying stuff from us as we did buying from them, then we have balanced trade. But if they only want $500,000 worth of nerd clusters, we've got ourselves a trade deficit.

[Jeff Guo]

And that is what a trade deficit looks like. We end up with a lot of stuff, a lot of mittens from Foreign Landia. They end up with some of our stuff as well, but also they end up holding a lot of leftover suitcases.

[James Surowiecki]

Full of US dollars in the non imaginary world. In the real world, we have trade relationships with just about every country and territory on Earth. And in general we tend to run trade deficits with those countries. We are a nation of consumers and the global economy has been shaped around that. And Don wanted to know. Okay, great. What does this mean for us, for our country?

[Jeff Guo]

For this we called up one of the world's experts on trade and trade deficits.

[James Surowiecki]

Can you please say your name and your job title for me?

[Mary Childs]

Yeah, Kenneth Rogoff. I'm a professor of economics at Harvard University.

[James Surowiecki]

Now when we're talking about our trade deficit, there are kind of two types of trade balances to think about. There's our big overall global trade deficit, and then there are a lot of smaller trade relationships with each individual country that comprise the overall big one. Those are our bilateral trade relationships.

[Jeff Guo]

So Ken says let's first talk about those bilateral relationships for a second.

[James Surowiecki]

Okay, so Ken, if I'm like a big fan of Japanese snacks, which is true, and I want to go buy a Matcha Kit Kat bar, which is now much easier than it used to be. So I like go buy it and my dollar goes into space, into Japan, right?

[Mary Childs]

No, that's right. And that mere action is you're contributing to the trade deficit when you do that.

[James Surowiecki]

And Ken says, normally it's okay if, say, we're buying more stuff from Japan than we're selling to them. So it is fine for me to just buy a matcha KitKat.

[Mary Childs]

You don't have to run balanced trade with Japan.

[Jeff Guo]

And one of the reasons individual countries run trade deficits with each other is because different countries make different things and also want different things.

[James Surowiecki]

Like in the US we just can't grow a lot of coffee or bananas because of climate. But we do actually export a lot. And what we are comparatively better at is invisible stuff, less tangible things. We actually have a trade surplus in services. We export cloud storage, tickets to a show in Vegas, an HBO subscription, a J.P. morgan bank account, or a seat at Ken's class at Harvard.

[Mary Childs]

We just kill it in that stuff. We dominate. On the other hand, if you're looking at bicycles, no, we import them. But, you know, I mean, not everybody's good at everything is sort of the basic idea of trade, right?

[James Surowiecki]

Trade. Ken says we do what we're good at doing, which in my case is, you know, comparatively making podcasts, and then we purchase the yield of what someone else is better at doing, which is making Matcha Kit Kat bars.

[Mary Childs]

We don't have to sell them the same thing. We can sell them tech services, we can sell them banking. We don't have to sell them candy bars back.

[Jeff Guo]

What two countries buy from or sell to each other, it's probably never going to match up perfectly.

[James Surowiecki]

We can buy crates full of matcha KitKat bars from Japan, while Japan buys boatloads of vanilla from Madagascar and Madagascar buys vegetable oil from us. So each individual trade relationship can look wack in scale or in kind.

[Jeff Guo]

This is why the US Trade deficit is generally considered in the aggregate, the big global overall number, as opposed to the 200. Some individual bilateral trade relationships we have.

[James Surowiecki]

So when President Trump last week announced these new tariffs that aimed to close each bilateral trade deficit, Ken says he thought that was nuts.

[Mary Childs]

I'm not somebody who just automatically assumes if Trump did it, it's stupid, or if Trump did it, it's wrong. And actually, if he just put 10% tariffs on everyone, it's a tax, it's bad. Maybe I don't agree with him about who he's taxing and who he's not. If he just put the tariffs on and went home, not a great idea. But let's not all get worked up about it. They just seem to pull this out of thin air because the boss doesn't like bilateral trade deficits.

[Jeff Guo]

And Ken even said there may be some method, some logic behind putting tariffs on every single country in the world.

[Mary Childs]

Just to be a little bit generous. He's concerned that if I just slap tariffs on China, they'll route it through somewhere else that's been happening through Mexico. So he wants to stopgap that.

[James Surowiecki]

Ken used to be the chief economist at the imf, trying to lend to developing economies to help them grow. So balancing trade with all of these tiny countries where people don't have money to buy lots of stuff from us in the first place seemed also nuts.

[Mary Childs]

My heart really bled for Sri Lanka. They've had a horrible financial crisis. It's just terrible situation there. And we put a big tariff on them. For what? I mean, how are they going to dig their way out of their debt problem if they have those tariffs?

[Jeff Guo]

But the administration is not concerned with Sri Lanka. They are concerned with the US with closing our trade deficit with individual countries and also the overall trade deficit. And if you look at our overall trade deficit, it is pretty big, the biggest in the world, actually.

[James Surowiecki]

And is that bad? That's after the break.

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[James Surowiecki]

Learn [e-mail] America is running a global trade deficit. Since the late 1970s, we have been importing more goods and services from everywhere than we are exporting to everywhere.

[Jeff Guo]

And you know, it is fair to wonder, a lot of people have, is any of this okay for our economy?

[James Surowiecki]

Or as our friend listener Don Randall put it, will there be bad consequences for not balancing our trade? Well done. There is one thing trade deficits do that we haven't talked about yet. It has to do with where the money goes when we run trade deficits. When we buy stuff from other countries, they end up with our dollars. So our trade deficit spreads dollars all over the world.

[Jeff Guo]

So allow us to briefly return to our overly simple hypothetical example with just the United States and Foreign Landia, the only two countries on the earth. And picking up where we left off, we were running a trade deficit with Foreignlandia. We were buying more of their Mittens, but they were buying less of our nerds clusters, which meant that the folks of Foreignlandia, they had all these extra US Dollars lying around. And what can the citizens of Foreignlandia do with those leftover dollars?

[James Surowiecki]

They could stuff them under their mattresses or they can spend them in a place that takes US Dollars. So the US and if they're not using those dollars to buy our stuff, then the only thing left to do is invest those dollars in the United States, right?

[Jeff Guo]

They might put those dollars into our banks, and our banks would then lend those dollars out to other people. They might put those dollars into our stock market or buy into a fancy Silicon Valley startup, or they could loan those dollars to American businesses or to the U.S. government.

[James Surowiecki]

And this is basically how it goes in the real life world, because if you have US Dollars, there are still really only three things you can do with them. You can, you can stuff them under your mattress. You can buy stuff or invest in stuff in US Dollars. The only difference is here in the real world, you can trade them for another currency, but then someone else has the dollars and they still have to stuff them, spend them, or invest them.

[Jeff Guo]

And our economist extraordinaire, Ken Rogoff, he says what eventually tends to happen with all these dollars that end up in the hands of foreigners is that they invest them, they invest them back in the American economy.

[Mary Childs]

The mirror image of the trade balance is that these countries can take that dollar and they can go in, they can buy stock, they can buy treasury bonds, whatever.

[James Surowiecki]

And over the past half century, the prices of basically all those assets have gone up and that has contributed to their wealth and to ours.

[Mary Childs]

We've been doing amazing and producing wealth.

[James Surowiecki]

Ken actually has a book coming out called Our Dollar. Your problem. When people think about Trade. Often they're just thinking about the goods and services countries are selling to each other. But in that mirror image, on the flip side of this, there are dollars. The more we import from other countries, the more US Dollars end up in foreign hands. And if people from other countries are not spending those dollars buying our goods or services, then they are investing it in our assets because it all has to balance out.

[Jeff Guo]

And so if you want to assess who is winning and losing, whether trade deficits are good or bad, whether anyone's getting ripped off, you have to track where those US Dollars are going, and.

[James Surowiecki]

You can actually look up where those US Dollars are going. The Bureau of Economic Analysis publishes these charts. As of 2024, foreigners owned about $62 trillion of U.S. assets. They own almost a quarter of our government debt and about 20% of our stock market.

[Jeff Guo]

So is any of that good or bad for the overall economy? Well, all that investment does make some people uncomfortable. It does intertwine us with our trading partners, including ones that may not be aligned with our political goals.

[James Surowiecki]

But from the perspective of the health of our economy, it kind of depends on where they invest the money and how we end up spending that money. Take government debt, for instance. Other countries are eager to buy our government debt to lend to us at low rates.

[Mary Childs]

The right question is, why is your government running a deficit? Is it doing great investments? Is it building infrastructure? Is it doing schooling? Is it doing things that you want it to do? Are you happy with how you're borrowing?

[James Surowiecki]

The same goes for companies. Are those companies taking all that money they're getting from investors and spending it on productive things like building factories or funding high tech research and development?

[Jeff Guo]

And the answers to these kinds of questions, you're not going to find them by looking at the trade deficit itself. You kind of have to look at the American economy as a whole.

[James Surowiecki]

And Ken says, look at our gdp. By that measure, we've been growing faster than basically any other advanced economy.

[Mary Childs]

We have just danced over the rest of the world the last 20 years. We have been the envy of the world. Our economy is not terrible. It, or at least wasn't until a couple days ago. It is fantastic. And part of why we have a trade deficit is everybody wants in. They want to invest in the United States.

[Jeff Guo]

Yeah. What Ken is saying is that in other countries, they're using less of their US Dollars to buy stuff from us because they'd rather buy a piece of Apple or Nvidia or other companies, which can help companies maybe buy more equipment and hire more workers. It makes our trade deficit worse, but it might help our overall economy grow faster.

[Mary Childs]

In fact, we were doing so well, they wanted to have a bit of surplus with us so they could get in on the action. It's a complex system, but it hasn't worked badly for us.

[James Surowiecki]

It hasn't worked badly for the economy overall. But there have been trade offs. Like all this money flowing in has been great for the federal government because all that demand for our debt means we get charged lower interest rates. It's been great for companies and people who own stocks and bonds, but if.

[Jeff Guo]

You don't own any of that stuff, maybe that's not great for you. And the trade situation itself has created winners and losers. All the cheaper imports that fuel the trade deficit. Those were very hard for US Manufacturers to compete with. And so lots of US Manufacturers and manufacturing jobs are gone.

[James Surowiecki]

So listener Don asked us, is a trade deficit bad or good? And the answer is, it really depends on what is underlying the trade deficit.

[Jeff Guo]

Yeah, a trade deficit can be a sign of bad things, like maybe your economy is consuming too much stuff or your economy isn't making anything that people want to buy. But a trade deficit can also indicate that good things are happening for us.

[James Surowiecki]

Part of why we have a trade deficit is as a nation, we buy a lot of stuff, but also like Ken says, because countries out there are really eager to sell us stuff for lots of reasons, like to build up their own manufacturing industries, but also because they want our dollars, want to invest in our economy.

[Jeff Guo]

And that's why Ken says that most of the time the trade deficit isn't the most useful metric.

[Mary Childs]

We tend to think it doesn't matter a heck of a lot unless it's giant and very big compared to what it was a year ago or two years ago. So I have worried when it was really big.

[Jeff Guo]

Yeah, like 20 years ago, around 2005, when all of a sudden our trade deficit jumped.

[Mary Childs]

It was much bigger and it had gone up very, very sharply. And I thought something was wrong with other economists.

[James Surowiecki]

He wrote papers about this alarming sudden growth in the trade deficit.

[Jeff Guo]

And what Ken eventually realized was that the real problem wasn't this sudden rise in the trade deficit. That was just a manifestation of the problem. The real problem was in the mirror image. It was about where those dollars on the other side were going.

[Mary Childs]

We had relaxed our regulation too much, our banking regulation, our mortgage regulation, and we're making it too easy for people to borrow. And so that was sucking money in from the rest of the world, and.

[James Surowiecki]

They were investing all that foreign investment was showing up in the trade deficit. People in other countries, instead of using their dollars to buy our airplanes or our oil, they were using it to invest in our housing market and financial markets. And those markets kept going up, up, up until they crashed in the financial crisis of 2008. The trade deficit had been a sign, one of many. You could argue that something was off, overheating.

[Jeff Guo]

So Ken says the trade deficit, it's more of a diagnostic tool. It's just a way to measure to see what role in the global economy.

[Mary Childs]

Think of your body, okay, you know, something hurts a little one day, doesn't the next day. And you know, you go along, you get used to it. You don't even think about it. Think of that as a small trade deficit. And then one day, ah, you know, my arm hurts. Okay, you want to go, you know, why is it hurting? What change? What's different?

[James Surowiecki]

As with your body, a sudden change might mean something's wrong. But if it's just daily aches and pains, it's probably fine.

[Jeff Guo]

And those pains might even be good. It could mean that you just worked out really hard and are a little bit sore.

[James Surowiecki]

Right? The economy was getting swole. This episode of Planet Money was produced by Emma Peaslee and edited by Marianne McCune and Kenny Malone. It was fact checked by Sarah McClure and engineered by Kwesi Lee. Alex Goldmark is our executive producer. I'm Mary Childs.

[Jeff Guo]

I'm Jeff Guo. This is npr. Thanks for listening.

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