America’s $1.2 trillion trade deficit: Selling land for beads?

In 1626, the Canarsee tribe sold Manhattan Island to the Dutch for boxes of beads and trinkets.

Historians furiously debate this story. Some claim the Dutch swindled and strong-armed the Canarsee into taking a bad deal. Others argue both sides were happy: The Dutch needed land, and the Canarsee wanted European technology and luxury. A few even suggest that the Canarsee tricked the Dutch and the neighboring tribes — they did not own the land they allegedly “sold.”

We are now paying more than $150 billion in interest every year to foreign entities for the privilege of buying the products we should be building.

While we may not agree on why the Canarsee sold Manhattan, just about everyone attempts to justify the sale. Surely the Canarsee were not this foolish? No one would ever trade land for beads!

Unfortunately, history’s lessons are lost on politicians. Consider that America has run a trade deficit for over 40 years. Last year, the trade deficit was $1.2 trillion. Deficits add up: If we add up all the deficits since 1974 and adjust for inflation, we spent over $25 trillion on imports — $73,000 for every man, woman, and child.

How did we pay for all this? We sold our assets — land and businesses — and debt. We traded land for made-in-China beads.

More importantly, how do we stop the looting of America? Tariffs.

Once upon a time in the West

Simply put, a trade deficit occurs when we import (buy) more than we export (sell) to another country during a specific time period. Usually, we look at the numbers over a yearly basis, because different countries buy and sell different things depending on the seasons.

For example, if America bought $100 worth of oranges from Japan in November but only sold Japan $50 worth of apples in July, we say that America ran a trade deficit of $50 with Japan during the year. Conversely, we say Japan ran a $50 trade surplus with America. The overall difference is called the balance of trade.

In real life, of course, America buys more than oranges and sells more than apples. We buy and sell all kinds of goods, that is, physical products from apples to iPhones to cars. Therefore, when media personalities talk about the trade deficit, they usually refer to the overall trade deficit in goods — the deficit between all physical products bought and sold by America from all other countries.

In 2024, America’s trade deficit was $1.2 trillion. This is a huge amount — roughly as big as the GDP of whole countries like Mexico, Indonesia, or Turkey. We have run trade deficits every year since 1973.

Money for nothing, checks for free

How does America pay for the trade deficit? There are four — and only four — ways for us to get foreign goods. First, we can get them for free, such as foreign aid or gifts like the Statue of Liberty. Sadly, the Chinese are not giving us anything for free. This option is out.

Second, we could trade something. America does do this by selling a surplus of services (think banking and Big Tech). This brings the 2024 deficit down to $918 billion — still a huge amount. We pay for the rest by selling assets and debts.

Third, we sell assets. An asset is something that we made in the past that still retains value.

A good example of an asset is a house. The production of a house made in 1974 would contribute toward America’s GDP in 1973 but not today. However, the house — and the land — retains value and can be sold in the current year to buy foreign products. This sale would not count toward America’s gross domestic product, nor would it factor into the trade deficit, but it does balance the payment.

Just like the Canarsee, America trades assets — everything from Iowa’s best farmland to shares in New York’s largest companies — every year to pay for our trade deficit. For example, in 2024, foreigners bought an estimated $42 billion of residential real estate, $8 billion of agricultural land, and $12 billion worth of commercial real estate.

In addition to real estate, Americans also sell ownership of our businesses. As of June 2023, foreign investors owned some 17% of all American equities. Ownership of our businesses has dire consequences, such as giving foreign governments direct access to our technologies. This perpetuates the massive theft of American intellectual property, which is estimated to cost America up to $150 billion every year.

Fourth, Americans sell debt. This is sort of like buying groceries on our credit cards, except it is occurring at the national level. For example, foreigners own some $8.67 trillion of U.S. Treasury securities, accounting for 24 of the public debt. Further, America’s corporate and household debt has ballooned since 1973 to the highest levels since World War II.

Debt is especially dangerous because we have to repay the principle and we pay interest. This inflates the cost of buying foreign products in a way that most economists fail to appreciate. Consider that America became a debtor nation in 2006 — the first time since the Great Depression. As a result, we are now paying more than $150 billion in interest every year to foreign entities for the privilege of buying the products we should be building.

Dire straits

Over the last four decades, America spent trillions upon trillions of dollars — dollars that we did not have — on foreign goods. To pay for this mess, we sold our land and ownership of our nation and mortgaged our economic future. To add insult to injury, we made ourselves vulnerable to unfathomable levels of intellectual property theft, which endangers both our economy and our national security.

Something must be done to dam the flow of wealth from America. The solution? Tariffs.

Tariffs are the time-tested solution that were supported by America’s most successful presidents from George Washington to Abraham Lincoln to Donald Trump. Tariffs will reshoreAmerican industry and shift our economy from consumption to production, protecting our economy, our industry, and our national security.

Most importantly, tariffs will stop America from trading land for beads.