Japan in the 1980s pioneered the type of export-led, low-consumption development model later adopted by China and other Asian nations. A heavily managed financial market steered cheap financing toward manufacturers, and an extensive web of explicit and implicit subsidies and industrial policies directed taxpayer funds toward the promotion of exports. This was the institutional background for Japan’s high savings rate, which in the postwar period initially financed Japanese corporate investment in rebuilding domestic productive capacity, then financed Japan’s sizable budget deficit in the 1970s.
~ Michael Starr via American Affairs

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Persistent current account deficits also drive the increasing dominance of financial activities in the American economy, a process known as “financialization.” Because the current account deficit means the United States purchases more goods and services from abroad than it sells, foreigners accumulate dollars that must ultimately be invested in dollar-denominated financial assets.
~ Michael Starr via American Affairs

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A 2026 study found that nafta had a directly measurable impact on American lifespans. Communities exposed to Mexican import competition experienced, on average, a 0.68 percent increase in annual age-adjusted mortality over the fifteen years following the agreement, an effect the authors concluded was large enough to erase prior estimates of nafta’s aggregate welfare gains.
~ Michael Starr via American Affairs

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Elections are not won or lost due to economists warning about the NIIP. People care about current account deficits insofar as they cause plant closures, wage losses, and harm to communities across the country. This damage is what makes sustained current account deficits politically toxic. The core of the U.S. current account is the trade deficit, which pressures the labor market from two directions. Rising imports displace domestic production in trade-exposed sectors, while a relatively overvalued dollar suppresses export-oriented employment.
~ Michael Starr via American Affairs

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The U.S. dollar functions as a kind of “natural resource” that the United States produces to satisfy global demand for dollar-denominated reserves.38 But how far this can be taken is unclear. A shock to confidence in U.S. institutional governance (a debt ceiling default, for instance) could trigger a compounding panic and a free fall of the dollar. The United States is in uncharted waters.
~ Michael Starr via American Affairs

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Large government budget deficits generally worsen the current account, and fiscal tightening tends to improve it. This effect operates partly through the exchange rate: when a government borrows less, there is less demand for foreign capital, which lowers interest rates, allows the currency to depreciate, and improves competitiveness.
~ Michael Starr via American Affairs

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What determines whether a country runs a surplus or a deficit? The factors are interrelated. As a country’s currency appreciates, its goods become more expensive abroad and foreign goods become cheaper at home, incentivizing more imports and fewer exports, and thus pushing the current account toward deficit. Depreciation has the opposite effect.
~ Michael Starr via American Affairs

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The current account balance represents how much a country’s economy earns from or pays to the rest of the world in a given year. A current account deficit means a country pays foreigners more than it earns from them, making it a net debtor. A surplus means the opposite. For most countries, including the United States, the dominant component of the current account is the trade balance: the difference between imports and exports of goods and services.
~ Michael Starr via American Affairs

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Americans last focused sustained political attention on the trade deficit in the 1980s. A crisis strikingly similar to today’s—a collapsing industrial base, bipartisan fury in Congress, and a soaring dollar—produced the most consequential episode of international currency coordination in modern history. The Plaza Accord of 1985 and the diplomatic campaign that surrounded it succeeded in rapidly reversing the trade deficit. But the success did not last.
~ Michael Starr via American Affairs

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