To see the mechanism read this post:
This is an accounting identity: the trade deficit is equal to the savings-investment gap. Here’s a primer:
This is tricky and requires some focus to grasp. It’s not quantum mechanics though.
Also, Coyne simplifies. Tariffs could improve the US trade balance by driving the economy into recession and thereby reducing consumption and increasing savings. Let’s look at the key formula:
Exports - Imports = National Savings - Investment
Yes, you could boost national savings by reducing the federal budget deficit. You could also boost it by enticing foreigners to buy our bonds. Because if we’re buying more goods from abroad than we’re selling (imports > exports) we need to be selling foreigners something more than we are buying. That something would be financial assets like stocks, bonds, and US real estate.
During the late 1990s and early aughts, China put their thumb on the scale by buying massive amounts of Fannie Mae bonds (and selling more goods to the rest of the world than China bought). While the West probably should have retaliated at the time, we didn’t. And that’s water under the bridge.