> at some point USA needs to start to deliver value back to the rest of the world
First they already receive something of value, which is our money.
No one forces them to sell their stuff for our money.
Nor does selling us $1 of goods entitle them to get anything above and beyond $1 of our money. They have already been paid with sufficient value.
Now they must spend that dollar in America somewhere. So they have a choice
a) buy some other good or service from America (trade is balanced)
b) buy some American asset like a bond, share of stock, etc. Then the trade deficit goes up by $1.
The world is choosing to do b). No one is forcing them to. The moment they stop doing b) and start doing a), the trade deficit will be balanced. The moment they sell their existing dollar investments and buy US goods, the trade deficit will reverse. It is their choice, not America's choice.
The input of the U.S. in influencing this choice is merely the setting of interest rates. By setting rates, they determine the overall returns obtained from option b). Thus they can make option b) more attractive by raising rates, and less attractive by lowering rates. But our rates are basically zero already. Does it appear to you that the U.S. is running high interest rates in order to attract foreign investment? No, we don't really take the trade deficit into account when setting rates, we focus on inflation.
Now we could take steps to change the regime and strongly discourage imports. This would be the equivalent of
a) taxing foreign investment, so that there is a wedge between the interest rate obtained by foreigners and our domestic policy rate for fighting inflation. At a high enough tax, the rest of the world will collectively want to pull their money out of America, sell their dollar assets, and then buy American goods to get out from under the tax.
b) Subsidizing domestic production. The problem here is that business will tend to pocket the money. Option A is the more efficient approach.
Option A also attacks our status as the global reserve currency - it's about time we stop being the gold standard for the rest of the world. All of these deficits are the result of us being burdened with reserve currency status, which on the one hand gives us a lot of power to punish other nations, but on the other hand destroys the domestic manufacturing base.
I look forward to the time when we are no longer the world's banker but merely any other nation that needs to run balanced trade. For that to happen, we need to make our assets unappealing to foreign purchasers.
