U.S. Trade Agent-Based Model

Model Description

This agent-based model simulates the complex interaction between trade deficits, national debt, and international capital flows. The United States is represented as an economic agent interacting with other major trading partners like China and the European Union.

Key Concepts Modeled:

• Trade Deficit: The excess of imports over exports, representing goods and services the U.S. consumes beyond what it produces.
• National Debt: The accumulated fiscal deficits of the U.S. government.
• Twin Deficits Hypothesis: The relationship between fiscal deficits and trade deficits.
• Capital Flows: Investment flows between countries, which must balance the current account (primarily trade).
• Exchange Rate Dynamics: How currency valuations respond to and influence trade and capital flows.

Model Dynamics:

The simulation demonstrates how a persistent U.S. trade deficit requires offsetting capital inflows from trading partners. These capital inflows often take the form of foreign purchases of U.S. debt instruments. The model shows how this creates a complex interdependency - trading partners need the U.S. market for their exports, while the U.S. relies on foreign capital to finance both trade and fiscal deficits.