Podcast Episode #16
Welcome back to the Tax Free Millionaires Podcast, episode 16, where we challenge conventional wisdom and dive deep into what really drives wealth and prosperity. I'm your host, Reed Scott, and today we're taking on a big challenge and a big topic, and that topic is one that's been in the news for the last week and will probably stay there for quite a while.
And it's why the United States massive trade deficit isn't a crisis. It's actually a sign of strength and get ready for this. The worst thing that could happen is we actually start running a trade surplus. That would be the worst thing that could happen to America. And I'm gonna explain that in just a second.
But before I explain why a trade deficit is a positive for the United States, I thought I'd have a little fun and wrote a little poem, a rhyme rather, that you may all remember from when you were young. But I've retitled this called The Fall of Trumpety Dumpty, a nursery Rhyme for Grownup] Markets.
Trumpety Dumpty, declared with a grin. Tariffs will make us strong again. He taxed the goods from far and wide, then watched his growth, began to slide factory stalled prices, soared, stocks went red, and trade wars roared. So he paused it all just 90 days. It's all part of my genius ways. But fear once sparked his hard to tame and trust.
Once lost won't act the same. The damage spread deep and unseen in boardrooms, ports and ballot sheets lie all the king's pundits. Bold in their spin swore they could patch the mess we're in. But whispers turned to shouts of doubt. You can't just reboot when confidence is out. And though he smiled on camera, still the markets moved of their own free will because Humpty Trump, these game was rigged to fall and no quick fix could mend it all.
So I thought we'd just have a little fun because it's a serious topic and I realize a lot of people have lost a lot of money. So. We all gotta kind of keep our wits about us when things are going south in the market, right? I realized this week in watching all the news shows and interviews with Americans across the country, I realized something really critical and very important, and I thought I would take a moment on this podcast to try and clarify.
Now, normally on Tax Free Millionaires podcast, we talk about micro opportunities, how to make money investing in stock market. Alternatives to stock market investing that are tax free. And if you've read my book, tax Free Millionaires, which by the way is on Amazon and Audible, so if you're like me, I like listening to books now.
. And in that book I explain a lot of, things that. People are talking about right now, and one of those issues that I talk about in the book is called the budget deficit. Now, what I realized this week is a lot of Americans, and unfortunately even our own president, don't understand the difference between a trade deficit and a budget deficit.
And one is very, very bad. That would be a budget deficit and one is actually very good for us, and that would be a trade deficit. Uh, and let me explain. Most people hear the word trade deficit and think America's losing. We're buying more than we're selling, but that's not how the global economy works. A trade deficit, especially in goods, doesn't mean we're weak.
It means we're rich. It means we can afford to buy more than we produce, and that the rest of the world is lining up to sell to us and invest in us. We have a trade deficit, but we have a capital surplus, which means when we buy those goods. Other countries give it back to us in money and buy things from us.
. In fact, we have a services surplus of over $254 billion. So I know that Trump, when he announced these tariffs said, or earlier the week, said we had a trillion dollar trade deficit with China.
That is patently false. We have a, uh. Trade deficit with China of about 450, [00:04:00] uh, maybe 480 billion. That is actually cut in half to less than 254 billion when you apply our services, surplus, , against that. So in most countries outside China, China's relatively big. Most of the other countries like Vietnam and Japan and Australia and Europe, we actually have a, a budget, uh, a trade surplus when you roll in our services surplus.
Most people hear deficit and they think that's bad, but on a trade deficit side, it's not bad. On a budget deficit side, United States and I wrote my book, tax for Millionaires or Current Deficit, a Budget Deficit, not Trade Deficit, but our current United States budget deficit is approaching $35 trillion.
Now that means that we are spending more than we're taking in in revenue. So there's a number of ways you could fix that. But the trade deficit has nothing to do with the budget deficit, absolutely nothing. They're not related at all, and it's incredibly, um, pigheaded to think they are, and that by reducing the trade deficit, we're gonna help ourselves.
Here's the real deal. The US runs a massive capital account surplus. That means while we import goods, foreigners are pouring money into our economy. They're buying stocks, real estate funding our government debt, and backing our companies, investing in venture startups. Our assets in the United States are in demand, and that's not a weakness and it's a superpower.
And why do other countries run trade surpluses? Because they produce cheap goods for wealthier nations like us. If the US ever becomes a net goods exporter. Running a big trade surplus, it likely means we become a factory of the world like Mexico. Do you wanna be like Mexico? I don't think so. And that's not good.
So think about it. If Americans were exporting more than we import it likely mean wages have dropped. And when you hear Peter Navarro and uh, Lutnick talk about we're gonna have factories where we're making, uh. Shoes and textiles. Are you kidding me? We got rid of those low paying jobs decades ago because we didn't want 'em.
And by the way, a lot of jobs in the Rust Belt states. They didn't go to China, they didn't go to Mexico, they went to Tennessee, Georgia, Alabama, Texas, and they're still gonna go there. If, if we do have low paying jobs come back in, you think they're gonna move back into Michigan, which is a high tax state and a labor union state?
No, the American manufacturer's already moved outta the states. So if you're one of those states and you're complaining about. The trade deficit and you think that what President Trump is doing is gonna help you, it's not gonna help you. 'cause those jobs left and went to, Sunbelt states a long time ago.
They ain't coming back. If you wanna help yourself move to one of those states, , there's no unions there. So you may not make as high of a wage as you did before, but at least you'll have a job and it's probably gonna pay you a heck of a lot better. Uh, assembling Toyotas or Fords in [00:07:00] Kentucky or Tennessee or Alabama.
Then you're gonna, make, if you wait for a, , shoe factory to come back to Indianapolis. Uh, also those jobs went away 'cause of automation. , I went to school in Michigan, I. My graduate school and one of my friends, and of course, uh, actually, was a CFO for US robotics, and I went and visited as a factory.
Amazing. And that was 20, 30 years ago. And now the robotics have become even more, there are hardly any jobs left, for the old assembly line worker. So you can forget about it. The only jobs that would come back if we had a trade surplus would be low paying jobs.
We would become the factory for other nations and we'd ruin our economy. So think about it. If Americans were exporting more than we import, it would mean wages of drop. We'd be paying low wage manufacturing job and producing cheap goods for other countries. I don't think that's a story you want to write.
The ultimate irony is this. The more we obsess about bringing back [00:08:00] manufacturing or balancing trade, the more we risk turning into the kind of economy that lives to serve others rather than leading with innovation services and capital. A trade surplus might look patriotic on paper, but in reality it is the worst thing America could have happened to it.
So next time you hear a politician railing against the trade deficit, ask yourself, would you rather be the country buying everything or the one forced to sell everything just to stay afloat? And by the way, here's an important statistic to help drive home this fact. Most of the countries that we run a trade deficit with, the people in those countries can't afford to buy the very goods that they're making for us.
As an example of that, let me give you a statistic about the United States and China. In the United States, over 37% of households have an annual income of over $100,000, and this number is actually rising. Last year it was 34%, and this year it's gone up, or from 23 to 24, 20 24, it's gone up from 34% to 37%, and that number is rising every year in China.
On the other hand, supposedly this country that's taking advantage of us, less than 1% of the Chinese households make the equivalent to a hundred K. So in case you didn't hear that, lemme repeat it. In the United States, over 37% of American households make over a hundred KA year. In China, less than 1%. In fact, in Chinese households, only 18% make the equivalent of 15 K per year.
Most Chinese citizens don't make enough to afford the very goods we're buying from them. We all hear about the few Chinese coming into the United States and buying luxury real estate, and we make the incredible leap of logic that all Chinese are rich. The reality is much different. If you don't believe it, do your own research.
The Chinese are our factory town and they work for us, not the other way around, but if Trump de dumped, he has his way, it will soon be reversed. Now, by the way. If you've been a follower of this podcast, then you know, in my last episode, number 15, I called this market meltdown a week before it happened.
That's right, the week before Liberation Wednesday. I said it if that if you follow tax free millionaires investment courses and teachings, you were already outta the market automatically before Liberation Wednesday. And I told listeners to stay out. Now a lot of pundits were talking about is this buy a dip?
Should you come back and take advantage of these low prices? Because we had a little bit of a meltdown before Liberation Day, nothing near what happened on Wednesday. But nevertheless, we had a meltdown and , a lot of financial, , talking heads on the news channels we're saying, Hey, hey, this is a bite of dip opportunity.
I said, this is not a buy the dip opportunity. If you are a follower and if you are a student of the Tax Free Millionaire Courses, if you read my book, tax Free Millionaires, you know, you would've already been out of the market before, , liberation Day because the way we teach risk management, you would've set your stop losses and your, hedges to protect you from the crash that had already happened.
'cause we had a market downturn before Liberation Day, so. My students, myself, our listeners, people who have read my book, they should have been sitting there with cash because cash is king. And I told my listeners and anybody who would listen to me, stay out. This is not a buy the dip opportunity. This is a buy and get ripped opportunity.
So if you don't believe me, go back to episode 15 on my podcast. And listen, I called it and I said at that time, stay out. This was not a by the dip opportunity. Now why were I and my students at tax free millionaires automatically outta the market before it happened? Because we teach effective risk management and we teach you how to protect your capital, not lose it.
And while I was outta the market and kept watching market on, uh, pundits like Tom Lee telling people it could be a buy the dip opportunity, and he expected the market to rebound after the announcement. I couldn't believe it. I even saw one pundit on YouTube, and this wasn't Tom Lee, but another guy who actually showed Tom Lee and was talking about how great he was.
This , person on YouTube channel with over 450,000 subscribers. He was lecturing them and telling them, Hey, if you can't afford a 40% drop in your portfolio, you probably shouldn't be investing in the stock market in the first place. Can you believe that? Here's somebody that's 450,000 people listen to on a regular basis, and he's lecturing them about they, they should be able to absorb a 40% hit in a portfolio at tax free millionaires.
We never teach you to absorb a 40% hit. You're not even gonna get anywhere close to that because we teach you to protect your capital. Capital is king, cash is king, and my students and I are now sitting in cash waiting for the right time. Is it the right time yet? Well, I'm not gonna tell you that on this podcast 'cause I want you to read the book and if you like the book, you'll take the courses and learn how to do it right, because there is some effort involved in learning how to do it right.
When you turn your financial destiny over to people who don't know what they're talking about, there's salespeople, not rich people, [00:13:00] then this is what happens. They tell you not to complain when you lose 40% of your money. I can't believe that that kind of advice is going on. Um, so while his subscribers will be trying to get back to even in the next three years, my students are all in cash just waiting for the real bottom.
And I'm not gonna tell you on this podcast whether they're at the bottom, but I can't tell you this. If these measures go through and anything is near what were announced on Wednesday. We are in for a long-term recession, and not just a recession, but a rebalancing of the United States, uh, power already.
This past week, something happened that , I thought would never happen in my lifetime. Two countries that can't stand China and would never think of cooperating with them. And those countries are Japan and South Korea. Uh, this week after the, , liberation Day announced by Trumpety Dumpty, I.
These three countries, uh, Japan, South Korea and China announced that they are forming an Asian trade alliance. China loves what Trump has done because he's basically let them come in and talk to Europe, Australia, Japan, , about creating a free trade zone , China is now going out to all these trading nations,
These are where our friends, these people have supported us through thick and thin, and now they are not turning against us because they don't like us or hate us. They're forced to, we are forcing them to look for new alliances because they can't , afford to live with our tariffs.
So again, I, it's just unbelievable that Japan and South Korea would align with China, who they. Can't stand for a number of reasons, looking to form a free trade alliance. So the real question is, even if Trump comes out and renegotiated these tariffs down, he's already damages our alliances so bad. It's gonna take a long time to get him back if we started tomorrow trying to get him back.
Now does that mean you can't make money in the market, even in, in a reduced, economy? And, and the answer is no. We do have methods to make money in the economy. It's just if we don't get rid of these tariffs, then there'll be different types of opportunities.
You're gonna have to look for different types of stocks, different types of opportunities, and we talk about that. I'm going to be releasing a new course this summer on how to. Make money on dividend stocks as much as 15% a year from dividend stocks with less risk and uh, more income. So there's always a way to make money even in a, recession.
Let's hope it doesn't turn into depression . Let's hope that President , Trump comes to his census. You know, some people say, oh, this is all part of his grand scheme and. I don't think so because the things he says tells me that he actually believes trade deficits are bad. He doesn't understand the dynamics, and I'm not quite sure he understands the difference between a trade deficit and a budget deficit.
We are continuing to grow our budget deficit and while we focus on a trade deficit, which has nothing to do with a budget deficit, a budget deficit is bad because it causes inflation. It causes, a lot of problems in terms of our government being able to pay for services so. We have all this hoopla about cutting a, a couple hundred billion dollars outta the budget, but that's gonna make absolutely no difference whatsoever to our budget deficit.
Did you know that Over 8.2 , trillion dollars of our budget deficit, our budget deficit is approaching 35 trillion, and the budget deficit is caused by the difference between, again, our revenues from taxes and other sources and, . Our spending and over 8.2 trillion of that 35 trillion was caused by our 10 year wars in Afghanistan and Iraq.
We spent over $6 trillion in Iraq and about 2.2 trillion in Afghanistan. So over a quarter of that, uh, budget deficit was related to nothing that had to do anything at all with the education department, uh, or. Social Security or Medicare almost 50% of our budget in the United States is defense, and that's direct spending.
We have a lot of indirect spending on defense that's not even counted like the Veterans Administration. So when you hear this crazy talk again, uh, on television or radio or your friends telling you the trade deficit is bad, tell 'em Oh no. You don't mean the trade deficit is bad. What you mean is the budget deficit is bad.
'cause the trade deficit is what's keeping us alive and able to support our budget deficit until we can get it down. So I hope that made sense. Um, sorry to get into a macro discussion, but I think it was so important that people understand how important it is that we go back to a free trade economy.
Thanks. I look forward to talking to you next week. And again, I encourage you to get the book tax dash three millionaires. On Amazon, take care.
