These days, the dollars come back in the form of foreign purchases of U.S. Treasury bills, which are currently being issued at interest rates close to 0%. So ... in effect, U.S. trade deficits are actually being used to finance massive budget deficits here in the U.S. China lends us money at an interest rate of almost 0% to fund all of the things that would bankrupt this country if we had to pay for them ourselves (Medicare, Social Security, the largest military in the world, etc.).
That’s the technical argument but I don’t think it holds up to scrutiny. The money doesn’t have to come back if Saudi Arabia accepts it for oil and then just sends it back to China to purchase goods. The Canadian dollar, the Mexican Peso and other currencies aren’t universally accepted, the dollar is.
To make the argument that it has to come back at some point (even if to support deficit spending) doesn’t really solve the problem. It could take years, and while it’s gone it isn’t circulating here.
The other issue of course the devaluation of the yuan. What other course of actions exists short of weakening our own currency? I’m being honest here. I can’t think of another thing you could do.
Which is exactly why the federal beast does nothing about the growing trade deficit and loss of private sector jobs. There has got to be a better solution than giving the beast tariff income paid for by American consumers. Quotas are probably worse because they would cause shortages that lead to higher prices going into the pockets of foreign manufacturers. There has got to be some way to balance trade without creating windfalls for the wrong people.