Who will pay the price for Trump's economic goals?

The flip side of America relying on foreign savings all these years is that it has been able to consume far more

- James Mackintosh

Explaining what President Trump really wants has become a thriving industry in its own right, often proved wrong as soon as it is published. Two things are clear about his tariff policy, however: He wants a lower trade deficit and he wants investment to rebuild U.S. manufacturing. True believers who think he might achieve those goals should think through what else has to happen as a result.

The starting point is the balance of payments, the broadest measure of trade and investment in and out of the economy. Its two sides have to balance: the current account, which tallies up trade flows and some other stuff not worth getting into; and the capital and financial accounts, which measure, well, capital and money flowing in and out to buy things such as stocks and bonds and investments in factories.

For years, Americans have imported way more than they exported, thus the trade deficit in the current-account part of the equation. For the balance of payments to balance, there needs to be a corresponding inflow of capital. That has largely come from foreigners buying assets, most prominently stocks and government debt in the form of Treasurys.

Trump's plan will disrupt that dynamic. Smaller trade deficits mean smaller inflows of capital.

Trump's obsession is the goods deficit—and there are two ways it can come down.

The first is that the overall goods-and-services deficit remains unchanged, but services—about which Trump doesn't seem to care and in which the U.S. runs a surplus—are sacrificed for manufacturing. To wit: hurt Wall Street and Silicon Valley to benefit Main Street. This, though, would need shifts in domestic tax and regulation.