US trade deficits vs. US household net worth — they’ve risen together over the last half century

From Mark Perry.

"The chart above [I put it below-CM] shows the annual US trade deficit (inverted, right scale, data here) and the annual dollar value of US household net worth (left scale, data here), from 1970 to 2017. As can be seen in the chart, the steady increase in the US trade deficit over the last nearly half-century to a peak of $770 billion in 2006 before falling to an average of $500 billion during the last decade has been accompanied by a steady increase in the value of US household net worth, which has increased more than four-fold in inflation-adjusted dollars since 1970. In 2017, America’s household net worth — the total value of all household assets (real estate, vehicles, stock, savings, mutual funds, bonds, consumer durable goods, etc.) minus all debt (mortgages, car loans, consumer credit, etc.) — rose to another fresh record high of nearly $100 trillion, which is an average of almost $800,000 per US household.

Thanks to the rally last year that brought the stock market to new record highs with a gain of 19.5% from 2016, household net worth rose to nearly $99 trillion last year, which was a $9.0 trillion (and 10.5%) increase over the previous year and the largest one-year dollar increase in history. Not bad. Despite a $570 billion trade deficit last year that Trump is always complaining about and threatening to address because it’s “very one-sided and unfair” and a form of “rape” when it comes to China, the US stock market reached record highs in 2017, bringing the net worth of American households to a new record-high of $99,000,000,000,000.

Over almost half a century since 1970, the correlation between the increasing trade deficit and the rise in US household net worth is amazingly high at 0.92. But according to Trump and his fellow
protectionists scarcityists aren’t America’s $500+ billion trade deficits supposed to be robbing us of our wealth and making us poorer, not richer? The data are telling us that the exact opposite is actually true — that America and Americans keep getting consistently more wealthy over time, despite the rise in the US trade deficit. As Don Boudreaux commented in a post on Cafe Hayek last year (“Tell Me Again Why A Net Inflow of Capital Into America Makes Americans Poorer“) that featured an earlier version of the chart above:

“A rising
U.S. trade deficitU.S. capital-inflow surplus does not mean that Americans are losing net wealth. Quite the opposite, as reality turns out.”"