It is clear that the source of the trade deficit is the investment surplus. In other words, foreign governments and private entities have purchased too many American assets (such as US dollars, US stocks, US bonds, and US real estate), which has led to the trade deficit.

If the United States imposes tariffs to block the goods deficit, does it mean that it simultaneously blocks the capital surplus?

Take the distance between the United States and China as an example. Suppose the United States imposes a 100% tariff, and China does not impose any. China's exports to the United States would significantly decrease, or in other words, China would simply have no surplus. Foreign exchange reserves would not increase, and naturally, they would not buy US bonds.

Therefore, using tariffs to reduce the deficit also means that foreign capital will buy fewer American assets, which is to say: a double hit on stocks and bonds.

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