Amid all the tumult in financial markets, investors have been focusing on the fallout from President Trump’s tariffs that are intended to eliminate the U.S. trade imbalance in future years. By comparison, the wrangling over the federal budget has received much less attention.

This is a mistake, in my view, because the current account deficit, which includes trade in goods and services, is linked to the budget imbalance.

As students of economics are taught, the national income accounting identity shows that the current account imbalance is equal to the sum of the federal budget imbalance and the difference between investment and savings in the private sector.

Last year, for example, the U.S. ran a current account deficit of about 4 percent of GDP while the federal budget deficit was 6 percent of GDP. Private sector net saving was positive at 2 percent of GDP.

This relationship helps clarify that Republicans and Democrats should strive to reduce future federal budget imbalances to lower U.S. trade deficits.

Federal debt outstanding has been on an unsustainable trajectory since the 2008 Financial Crisis, rising from less than 40 percent of GDP to 100 percent in 2024. Much of this increase reflects ongoing growth of mandated programs such as Social Security, Medicare and Medicaid, as well as federal programs enacted during the COVID-19 pandemic.

Congressional Republicans are now planning spending cuts totaling $1.5-$2 trillion over 10 years to address this. However, the budget resolution the........

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