The correct answer to this question is, “Of course, the U.S. trade deficit is not sustainable.”

But then, what is? Neither the Roman nor the British Empire endured. Economic and political phenomenon eventually fade and die. Indeed, the U.S. trade deficit, one day, like everything else will be a thing of the past.

A more practical question would be, “How much longer might the U.S. trade deficit last? One year? Ten years? Thirty years?”

Some observers may presume that the demise of the trade deficit is imminent, perhaps by the end of 2006; but, it this reasonable?

The trade deficit has been growing for thirty years — which almost qualifies as a Keynesian ‘long-run’ . Since no clear mechanism exists whereby the trade deficit must end in, say, six months or a year, it could be that in thirty years our children will still fret about a trade deficit that has grown even larger.

The longevity of the U.S. trade deficit is quite germane to Capital Flow Analysis, since it is the dollars earned by foreign exporters that support the price of American bonds.

(See: “Trade Deficits Have Depressed Bond Yields for Twenty Years.”)

It is worthwhile to speculate about the sustainability of the trade deficit.

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