Subject: Re: Trump Steps on his own Trade Policy
The equation for national income is:

GDP = C + I + G + (Net exports)

That's the wrong equation. I was referring to the national saving and investment identity:

S +  (M – X) = I +  (G – T)

S = savings
M = imports
X = exports
I = investment
G = government spending
T = taxation.

Basically, it just illustrates that your nation's current account and capital account have to balance. By definition. The exchange rate will adjust so that capital inflows match current account outflows, or vice-versa in a country running a current account surplus. So if you increase your capital account inflows (by increasing foreign direct investment), you have to have an increase in your current account outflows (a higher trade deficit), other things being equal.

We have a big trade deficit (M - X), because we have both a big government deficit (G - T) and a lot of investment in our country (I) that isn't funded by our savings (S). So if Trump is out there driving up more FDI, that's going to increase the trade deficit. Because again, the current and capital accounts have to balance.

Here's a good explainer:

https://opened.cuny.edu/course...