New Delhi, April 7 -- Imagine two countries that trade with each other. Let's assume that country A has a permanent trade deficit with country B. Over a long period of time, say three or four decades, which country is better off?

The textbook economic answer is the importing country, despite its consistent trade deficit. This is because the consumption level of the importing country exceeds its productive capacity. Hence living standards are higher. Country A is not living beyond its means because it pays for the deficit with funds from abroad.

That country A has been America for more than four decades, it being the world's largest importer. Country B was Japan in the 1980s and then China took over that role.

What is illustrated in thi...