Extract A: The US Trade and Current Account Deficit

In late 2022, the US trade deficit in goods and services remained historically high. Despite aggressive interest rate hikes by the Federal Reserve, which typically strengthen the currency, imports of consumer goods grew by $8.2bnto$312bn, while exports rose only moderately by $1.1bnto$258bn. Efforts to reshore manufacturing and reduce reliance on overseas supply chains have yet to significantly shrink the trade gap.

The persistent trade deficit reflects a fundamental imbalance: US domestic consumption remains robust, fueled by liquid household assets, while national savings are low. A senior market analyst noted, "The strength of foreign demand for US Treasury bonds allows the US to run continuous deficits without immediate currency collapse. However, this relies on foreign investors remaining confident in US assets." Others express concern that structural deficiencies, such as aging infrastructure and skills gaps, permanently damage US export competitiveness.

In the final quarter of 2022, US real GDP expanded at an annualized rate of 2.6%, largely driven by resilient consumer spending and private investment. This consumption pull has dragged in record imports. Consequently, the US current account deficit stood at 3.9% of GDP in 2022. While some policymakers argue this is a sign of a strong, consuming economy, critics point to the long-term risk of debt accumulation, deindustrialisation, and potential vulnerability to sudden stops in capital inflows.

Extract B: Japan’s Persistent Surplus

In contrast to the US, Japan has historically run substantial current account surpluses, reaching 4.5% of GDP in recent years. This surplus represents a major global balance of payments asymmetry. While Japanese officials view the surplus as a safe haven buffer and a sign of global investment strength, trade partners frequently critique Japan for failing to boost domestic demand.

Although trade imbalances may tend to self-correct under a floating exchange rate system, Japan's surplus is heavily driven by primary income—the returns on its massive stock of foreign assets—rather than purely trade in goods. Furthermore, institutional domestic savings remain extremely high due to an aging population, dampening import demand. Despite Japan's efforts to stimulate domestic consumption, its structurally high savings and low domestic investment yields mean that capital continuously flows abroad, keeping the yen relatively weak and supporting export competitiveness.