In 1980 the foreign sector owned 10% of US assets. In 2020 it's 40%. Now that's not going to continue forever, because at some point the military wont even be able to make planes anymore, and the US government wont allow foreign ownership of Intel, SpaceX, Boeing, etc. Sure, we'll sell off McDonalds and Costco, but not Amazon or Google. Maybe we can reach 70% of our capital stock under foreign control after another 40 years, but not much more than that, so this party has a life expectancy of less than 40 years.
I don't care how irreplacable those Chinese workers are, they aren't going to work for free, so we will either need to produce more domestically or just do without, no matter how dependent we are on it, and no matter how unimaginable it is to live within our means.
At the same time, we are getting more and more domestic unrest as a result of the collapse of productivity as we outsource our increasing returns industries.
No productivity, foreign devaluation, supply disruptions -- that's a recipe for some serious social unrest, which will only increase once the supply of consumption drops from China comes to a halt.
So regardless of how unthinkable the alternative appears to be, the deficits will stop in the worst case with a currency crisis in the future. Many nations have gone through that, and it's terrible, it can even cause starvation, but it's not unheard of. Even if we do nothing about it, it will right itself, just through the dollar falling by a factor of whatever is required to bring the trade deficit into balance. At some nonzero factor that will happen. If it takes 100 dollars to buy 1 RMB, then we wont have a trade deficit with China, even if this means lots of industries become bankrupt. And if that's what it takes, then to bankruptcy they will go. If that means there are millions of people wandering the streets without jobs, and shortages of clothes, computers, concrete, and even basic machinary, well that's what it's going to be. Reality doesn't stop just because something becomes unthinkable. When Russia had its currency crisis, the life expectancy fell, inflation reached 84%, there were food shortages, and GDP contracted by half. We are not immune.
Bottom line, when you outsource your more productive industries, the standard of living has to decline. You can delay that decline for a while, but then the bill comes due and living standards drop. Your point, that we can't produce all these goods domestically, is just another way of saying we are living above our means. That will stop.
And if you think it's painful to stop the trade deficits today, imagine how much more painful it will be in 40 years when even more production has been outsourced, and we are able to produce even less domestically. Then a collapse of the dollar will be much worse than tightening our belt today and doing without. But the deficits will stop, it's only a question of how much longer we keep delaying it. Of course Trump didn't have the political will, or the mandate from our ruling class, to put an end to the party. But at some point we will have a President who will put an end to the party or the currency markets will do that for us.
