alt Hacker News> But eventually you do have to pay the workers and taxes in China in yuan, and ultimately that money comes from the US consumer, making some kind of US capital account transaction inevitable?
The thing you're missing is that money never actually has to cross the border when both parties to a transaction are on both sides of it. Corporation A gets money from the US consumer and pays it to Corporation B. The money is still in the US. It now belongs to Corporation B who invests it in US stocks etc. In exchange Corporation B provides <something> to Corporation A outside the US, which Corporation A can then convert into yuan outside the US.
It's equivalent to how money laundering works and why AML laws are a burdensome farce with a ~0% effectiveness rate.
Yes, but if everyone does that all the time then there's zero cross-border capital or investment flows which means... you've solved the problem?
Every country will have zero current account deficit which is getting you a long way towards what people are trying to achieve with tariffs. You could still have a trade deficit because of foreign investment income, but nothing like the massive imbalances that are seen today.
Just mathematically, the only way you can balance a huge trade deficit is with an equally huge financial account surplus. There is no way for everything to be made outside the US and bought by people inside the US indefinitely with no cross-border financial flows.
What you’re talking about is something like a hawala system, which works but it will only work indefinitely if flows in both directions are balanced, otherwise at some point you will have to move money to settle up