{"id":88979,"date":"2026-01-07T07:11:12","date_gmt":"2026-01-07T07:11:12","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=88979"},"modified":"2026-01-07T07:11:12","modified_gmt":"2026-01-07T07:11:12","slug":"are-government-debt-and-trade-deficits-linked-and-does-it-matter","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/01\/07\/are-government-debt-and-trade-deficits-linked-and-does-it-matter\/","title":{"rendered":"Are government debt and trade deficits linked \u2013 and does it matter?"},"content":{"rendered":"

I was asked this question<\/a> on the blog yesterday by Anja Cradden:<\/p>\n

I have a slightly related, slightly tangential question\u2026 is there a relationship between the size of government debt and the trade deficit?<\/p>\n

If we want to pay down government debt and stop transferring interest payments to wealthy \u2018depositors\u2019 with the UK government in the form of gilts, would becoming a net exporter help us do that?<\/p>\n

Am I wrong in having a hunch that low post-WWII asset prices were a contributing factor to high post-war productivity growth?<\/p>\n

Is there something wrong in my feeling that a pretty high, properly anti inflationary wealth tax designed to drastically lower asset prices could contribute to productivity growth in the UK economy, allowing us to export more and allowing us to pay down our government debt without employing austerity against our population?<\/p>\n

The way this relates to my thoughts on Trump in Venezuela is that I wonder if the rich in the USA do not want to address their asset price bubble with asset price drops and are looking to resolve their trade deficit issues and prop up asset values by incorporating exports of Venezuelan oil wealth into the U.S.A. \u2018export ledger\u2019 instead of addressing their internal economic problems, my feeling here being that if the trade deficit and government debt are linked in this way, is a long term government debt a sign that a country is living \u2018beyond its means\u2019? That is, importing more value than it exports? And that in the end that will have to be accounted for by a period of rebalancing by exporting more value than we import if we want to avoid a trajectory towards wars of imperialism to shore up our excess consumption?<\/p><\/blockquote>\n

That was a bit of a mega question, requiring a substantial response. This is it:<\/p>\n

\n

There is a persistent belief that long-term government debt signals that a country is \u201cliving beyond its means\u201d. That intuition usually rests on an analogy with household borrowing. It is also wrong. But it does touch on something real, which needs to be explained.<\/p>\n

The accounting reality<\/b><\/h3>\n

In any economy, three financial balances must sum to zero:<\/p>\n