In reply to: Mainstream theory concludes that the overall trade posted by ufl
and it works out with bilateral trade balances as well as the overall balance.
Countries that save a lot should run current account surpluses with countries that don't (which shows up as a deficit for the latter). What country has a low saving rate? U.S. What country saves a lot? China. The U.S current account deficit with China is the largest in the world.
That's because China floods the market with cheap goods, right? Is that why we have a very large trade deficit with Japan? all those cheap Japanese goods? No. It's because Japan has a signficantly higher saving rate.
This one of those questions where the economists' orthodoxy and popular perception are far apart. It's also on where the economists' story works pretty well.