<p>Premises of your Q are simply false:</p>
<blockquote>
<p>If a country has a positive savings rate, that means that more money had to come into the country from somewhere outside of the country.</p>
</blockquote>
<p>This is completely incorrect. Total savings of a country is sum of private and public saving. For an open economy output is given by <span class="math-container">$Y=C+I+G+X-M$</span> (where <span class="math-container">$Y$</span> is output <span class="math-container">$C$</span> consumption <span class="math-container">$I$</span> investment <span class="math-container">$G$</span> gov spending, <span class="math-container">$X$</span> exports and <span class="math-container">$M$</span> imports, the private saving is <span class="math-container">$S_p=Y-C-T$</span> and public saving is <span class="math-container">$S_g=T-G$</span> (see Blanchard et al Macroeconomics a European Perspective). Thus we can clearly see that <span class="math-container">$S_p+S_g=I+X-M$</span>. In another words in open economy public and private saving must be equal to investment plus exports minus imports.</p>
<p>Let us suppose investment is 1000 exports are 0 and imports are 500 thus trivially country runs trade deficit yet has positive saving of <span class="math-container">$S_p+S_g = 1000+0-500 = 500$</span>. Trivially saving is possible.</p>
<p>In addition, country having trade deficit is not equivalent to country sending out money. Generally you can only use home currency in your home country. Generally speaking one cannot use Japanese yens in the UK. If Japan wants to import cars from UK it has to sell its yens and buy pounds. Yens will be purchased by people who want to buy something in Japan because yens can be generally used to buy stuff etc only in Japan. So the total number of yens in Japanese economy will not change just because of trade deficit vis-a-vis UK, the same way as money supply of pounds in UK will not increase just because UK is running trade surplus vis-a-vis Japan.</p>

CC BY-SA 4.0
2021-05-05T09:15:04.343Z
I think it should be X exports and M imports?
Andy
CC BY-SA 4.0
2021-05-05T09:22:39.613Z
How is investment defined? Is it the total USD in saving accounts + stock market?
Andy
CC BY-SA 4.0
2021-05-05T09:22:46.610Z
@Andy yes correct I made a typo there because I was rearranging the expressions while editing thanks for catching it
1muflon1
CC BY-SA 4.0
2021-05-05T09:26:17.680Z
@Andy no investment is not stock market investment is the difference between income and consumption Y-C=I since we proved above it is equal to saving.
1muflon1
CC BY-SA 4.0
2021-05-05T13:07:01.890Z
I agree with Ronak Vora that this seems counterintuitive. Currently the US trade deficit is $74.4 billion (https://www.cnbc.com/2021/05/04/us-trade-deficit-surges-to-new-record-shortfall-with-china-rises.html). I would think that in the long run this would cause the value of the dollar to decline?
Andy
CC BY-SA 4.0
2021-05-05T13:12:14.033Z
@Andy US dollar has some special properties due to being reserve currency, but despite of that yes this puts pressure on value of dollar (on ForEx) to depreciate, and ceteris paribus it would lead to depreciation but then there are other offsetting forces due to US dollar being  reserve currency and also other things like some international trade deals between individual companies, even between companies that are not from US can be denominated in dollars, this all creates special demand for dollars and lead to appreciation of dollar on ForEx but ordinary currencies dont  have such benefits
1muflon1
CC BY-SA 4.0
2021-05-05T17:23:34.450Z
Right so that means that the investment piece came from outside of the country. Am I correct about this? That would reconcile it for me.
Ronak Vora
CC BY-SA 4.0
2021-05-05T17:27:38.910Z
@RonakVora yes, $I$ only tracks the total gross investment regardless of nationality. Chinese national purchasing capital goods in the US would be part US investment - this is defined geographically not along national lines
1muflon1
CC BY-SA 4.0
2021-05-05T17:27:45.483Z
If there were a fixed money supply of, say, $100 and 100 RMB, the only way for the entire country to have national savings would be either from: 1. a trade surplus or 2. more foreign investment in domestic assets than domestic investment in foreign assets. Since 1. isn't possible due to the trade deficit, that means that our investment came in from abroad, was pumped through either government bonds, spent by government, and then paid out to employees or 2. directly via debt / equity and then paid out to employees.
Ronak Vora
CC BY-SA 4.0
2021-05-05T17:28:37.027Z
Awesome, that makes a lot of sense! Thanks @1muffon1.
Ronak Vora
CC BY-SA 4.0
2021-05-07T16:55:23.487Z
It seems foreign investors owns about 40% of US stock: https://www.taxpolicycenter.org/taxvox/who-owns-us-stock-foreigners-and-rich-americans.
Andy
CC BY-SA 4.0
2021-05-05T08:40:46.173Z
2021-05-05T11:03:05.467Z
2021-05-05T11:03:05.467Z
1muflon1
<p>If a country has a positive savings rate, that means that more money had to come into the country from somewhere outside of the country. However, we run a trade deficit, so we're actually sending more money out than we are bringing in. How is this possible?</p>

<gdp><saving><balance-of-trade>
How does the US have gross national savings while running a trade deficit?
Ronak Vora
# How does the US have gross national savings while running a trade deficit?

(Asked by: username_0 on 2021-05-05)

If a country has a positive savings rate, that means that more money had to come into the country from somewhere outside of the country. However, we run a trade deficit, so we're actually sending more money out than we are bringing in. How is this possible?

**Tags:** gdp, saving, balance-of-trade


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## 1 answers

### Answer by username_1 on 2021-05-05. Score: 2 | Accepted answer

Premises of your Q are simply false:

> If a country has a positive savings rate, that means that more money had to come into the country from somewhere outside of the country.

This is completely incorrect. Total savings of a country is sum of private and public saving. For an open economy output is given by $Y=C+I+G+X-M$ (where $Y$ is output $C$ consumption $I$ investment $G$ gov spending, $X$ exports and $M$ imports, the private saving is $S\_p=Y-C-T$ and public saving is $S\_g=T-G$ (see Blanchard et al Macroeconomics a European Perspective). Thus we can clearly see that $S\_p+S\_g=I+X-M$. In another words in open economy public and private saving must be equal to investment plus exports minus imports.

Let us suppose investment is 1000 exports are 0 and imports are 500 thus trivially country runs trade deficit yet has positive saving of $S\_p+S\_g = 1000+0-500 = 500$. Trivially saving is possible.

In addition, country having trade deficit is not equivalent to country sending out money. Generally you can only use home currency in your home country. Generally speaking one cannot use Japanese yens in the UK. If Japan wants to import cars from UK it has to sell its yens and buy pounds. Yens will be purchased by people who want to buy something in Japan because yens can be generally used to buy stuff etc only in Japan. So the total number of yens in Japanese economy will not change just because of trade deficit vis-a-vis UK, the same way as money supply of pounds in UK will not increase just because UK is running trade surplus vis-a-vis Japan.

> **Comments:**
> **username_2**: I think it should be X exports and M imports?  
> **username_2**: How is investment defined? Is it the total USD in saving accounts + stock market?  
> **username_1**: @username_2 yes correct I made a typo there because I was rearranging the expressions while editing thanks for catching it  
> **username_1**: @username_2 no investment is not stock market investment is the difference between income and consumption Y-C=I since we proved above it is equal to saving.  
> **username_2**: I agree with username_0 that this seems counterintuitive. Currently the US trade deficit is $74.4 billion (https://www.cnbc.com/2021/05/04/us-trade-deficit-surges-to-new-record-shortfall-with-china-rises.html). I would think that in the long run this would cause the value of the dollar to decline?  
> **username_1**: @username_2 US dollar has some special properties due to being reserve currency, but despite of that yes this puts pressure on value of dollar (on ForEx) to depreciate, and ceteris paribus it would lead to depreciation but then there are other offsetting forces due to US dollar being  reserve currency and also other things like some international trade deals between individual companies, even between companies that are not from US can be denominated in dollars, this all creates special demand for dollars and lead to appreciation of dollar on ForEx but ordinary currencies dont  have such benefits  
> **username_0**: Right so that means that the investment piece came from outside of the country. Am I correct about this? That would reconcile it for me.  
> **username_1**: @RonakVora yes, $I$ only tracks the total gross investment regardless of nationality. Chinese national purchasing capital goods in the US would be part US investment - this is defined geographically not along national lines  
> **username_0**: If there were a fixed money supply of, say, $100 and 100 RMB, the only way for the entire country to have national savings would be either from: 1. a trade surplus or 2. more foreign investment in domestic assets than domestic investment in foreign assets. Since 1. isn't possible due to the trade deficit, that means that our investment came in from abroad, was pumped through either government bonds, spent by government, and then paid out to employees or 2. directly via debt / equity and then paid out to employees.  
> **username_0**: Awesome, that makes a lot of sense! Thanks @1muffon1.  
> **username_2**: It seems foreign investors owns about 40% of US stock: https://www.taxpolicycenter.org/taxvox/who-owns-us-stock-foreigners-and-rich-americans.  

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