From Jared Bernstein’s Blog On the Economy:
When one country runs a trade surplus, another country must run a trade deficit. That right there tells you that the scolds who say “if only we were more frugal” are wrong about this. We are not the masters of our fates here that Neil’s rap suggests. As Bernanke intimates in the above link, when Germany runs an 8 percent trade surplus (!), other countries must consume that much more than they produce. It is in this manner that surplus countries not only export goods to deficit countries. They also import labor demand from those countries, some of whom, like peripheral Europe, could really use that demand.
Of course, we could, too. Neil’s right that surplus countries lend their excess capital to us to invest as we see fit. The happy version of this is that those capital flows put downward pressure on our interest rates, and we build all kinds of productive stuff that wasn’t being built at the higher rates that prevailed before our trade deficit got larger. The sad, and I fear more realistic version (and Bernanke got this right too in his 2005 paper that introduced the “savings glut” concept), is our rates are already crazy low and thus these flows lead to overinvestment, in dot.com junk, fiber optics, houses, oil rigs, and whatever else looks like the next big thing (the flows also push up the value of the dollar, which worsens the trade deficit).
And when I say “overinvestment,” I mean bubbles. Yes, a country can demonstrably get to full employment with persistent, large trade deficits, but they/we do it with bubbles. And bubbles must burst, meaning that we can and do get to full employment in the presence of big trade deficits, but we cannot stay there, and we will often have a hard time getting back to full employment, as has been the case in recent decades.
Bottom line, always go with Neil over Trump. But persistent, large trade deficits and surpluses concentrated in specific countries (US, China, Germany) are bad news. They cost workers in deficit countries jobs and incomes, and they are functions of man (and woman)-made savings gluts that contribute to global instability and investment bubbles, particularly when interest rates are already near zero, where they are now and where they may well be for awhile.