Andy McCarthy is right on the money, literally, in his post today. He argues that the new 10 percent global tariff Trump is imposing under Section 122 of the 1974 Trade Act is flatly illegal. The law authorizes limited duties only “to deal with large and serious United States balance-of-payments deficits.”
The “balance of payments” includes, but is not the same as, the balance of trade. Rather, it is a comprehensive measure of all economic transactions between America’s residents and the rest of the world. This includes transactions not only related to imports and exports, but also direct investments, loans, and asset purchases. Because every dollar sent abroad must eventually return to the United States for use under a regime of floating exchange rates, the balance of payments over a long-enough period should even out to zero. Thus, the value of our trade deficit should be matched, dollar-for-dollar, by a nearly equal “capital account” or “financial account” surplus each year. (Any remaining deficit is redeemed in another year, either earlier or later.)
We can check this economic theory with math. The most recent year that complete data are available on both the U.S. balance of trade in goods and services — known as the “current account” — and its net financial account is 2024. The World Bank has the statistics.
In 2024, America’s current account was –$1.185 trillion, the largest trade deficit in the world by far. The financial-account surplus has a lot of work to do in covering that deficit. Fortunately, it was also the largest in the world by far, at $1.128 trillion the same year. (The World Bank lists the U.S. financial account as negative because, under IMF accounting, a negative value means foreigners are buying more U.S. assets than Americans are buying foreign assets — a net capital inflow.)
Simple subtraction reveals that America’s balance-of-payments deficit in 2024 — which Trump alleges is “large and serious” was $57 billion. That is approximately 0.2 percent of U.S. GDP that year. It’s a rounding error in an international financial system that exchanges trillions of dollars every day. There is no reason that data from 2025 won’t yield a very similar result.
So, there you have it. America is not suffering a “large and serious” balance-of-payments deficit because our balance-of-payments deficit is essentially zero, just as centuries of proven economic theory would predict.