Imports, Exports, and Exchange Rates: Crash Course Economics #15

When Americans spend money on Chinese products, Chinese people theoretically only have two options for spending that money: They can buy American products or they can buy American financial assets like stocks and bonds. These transactions are recorded in the other subaccount, which is the financial account. There is a reason why the flow of goods and the flow of money are symmetrical. If consumers, businesses and governments want to buy more goods than a country produces domestically, they must import those goods, there is a trade deficit and that country must sell assets to pay for those

imports

, and that is recorded in the financial account. .

The United States' savings rate is very low, meaning it consumes everything it produces and sells assets to pay for the additional production it

imports

from abroad. Americans chose to run trade deficits. International trade, like everything in

economics

, involves trade-offs, choices, winners and losers. In purely economic terms, trade deficits and surpluses are the result of people and nations pursuing their own interests. But although everyone seeks to achieve their own interests, international trade does not always serve our individual interests. What may be good for the overall global economy may be very detrimental to me or my country. But trade as a whole improves the global standard of living, although it is sometimes impossible to see it up close.

Thanks for listening. See you next week. Crash Course Economics was made by these kind people. You can support Crash Course on Patreon, where you can help keep the channel's content free for everyone forever, and you'll also get great rewards. Thanks for follow me. Be amazing!