Professor Sposi gave a luncheon presentation to the D/FW chapter of the National Association for Business Economics about trade deficits and the effects of tariffs.
Summary: Two fundamental principles from national income accounting. First, a country’s trade deficit, defined to be its imports minus its exports, is the same as the country’s income minus its spending, which means fiscal policy (part of spending) cannot be ignored. Second, a country’s deficit also equals its investment minus its saving, which means that international finance (foreign borrowing, FDI) cannot be ignored either. When it comes to bilateral deficits, it is imperative to consider value-added measures of trade, in addition to traditional gross measures, to account for global supply chain linkages.
Link to the presentation slides below:
https://bpb-us-w2.wpmucdn.com/people.smu.edu/dist/b/1355/files/2025/04/Sposi-Slides-20250428.pdf