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Your thought experiment leaves out the part of the transaction where the actual deficit is created, then says it doesn't matter because you can't see it anymore. You then go on to make an argument based on that fact. Do you not see why that is a problem?

The USD is a little weird, since it is the world reserve currency. That means that yes, China can use dollars received to buy goods from other countries. That doesn't work the other way around, though. We can't send Chinese Yuan to Canada in exchange for wood. Not that it's impossible - they just don't want it. But the real problem comes when the Chinese have enough dollars to pay for everything they buy from other countries. They end up with an ever-increasing pile of dollars for which they have no use. This is the situation we are in now. A large part of the deficit has gone to treasury bonds, meaning we are literally paying interest on the deficit. The money is also used for things like the Belt and Road initiative and building a navy, that give China a strategic advantage. If China wanted to, they could just sell it all and crash the dollar. Are you starting to see why it matters yet?

freemymind 🇨🇭 10mo ago

What you mean in actual deficit? When you buy a car for 50k US-dollars, is this an actual deficit for you? Or did you have 50k Dollars and really needed rather a car then these 50k?

I mostly buy my stuff, because I beleave its price is fair when I buy it. So it is in balance.

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Cpt. Charisma 10mo ago

The actual deficit is the dollars the foreign country ends up holding (or the foreign currency that ends up in the U.S.) If we buy more stuff from China than they buy from us, they end up with extra dollars. They expect to be able to buy real things with those dollars at some point. That is the deficit. The things China expects to buy for the dollars they have earned.