In April, the trade deficit halved, official data showed Thursday. This was largely because companies had stocked up in March ahead of “Liberation Day” tariffs, but the 19.9% drop in imports still exceeded economists’ expectations. Declines in imports of cars, cellphones and other goods suggest tariffs are helping narrow the deficit.

“America’s net external asset position is the best metric to measure fiscal space, and this is on a rapidly deteriorating path,” Deutsche Bank economist George Saravelos recently wrote to clients.

Across wealthy countries, the cost of government borrowing tracks the balance of assets minus liabilities with the rest of the world, called the net international investment position. Switzerland, a net holder of foreign assets, has 10-year yields of 0.4%. The U.S., by contrast, is the biggest net external debtor among top nations, with a negative investment position equal to 88% of gross domestic product last year. It borrows at 4.5%.

Trade is central to the discussion: Accounting-wise, America borrows from foreigners whenever there is a gap between imports and exports. The negative external balance mainly reflects trade deficits accumulated since the 1990s.

In one regard, the link with the budget deficit is clear: If, on net, companies and consumers spend more abroad, demand is weaker at home and unemployment could rise, so the government has an incentive to fill the gap. Anticipating inflation, central banks in importer nations keep interest rates higher.

Yet the orthodox prediction is that a large buildup of external liabilities eventually leads foreigners to stop refinancing them, or the currency to readjust, and it hasn’t panned out. It appeared to work in the U.S. in the 2000s when, as trade deficits widened, the dollar weakened and boosted the value of U.S. assets held abroad, improving the external balance.

Starting a decade ago, however, imbalances worsened again, with a dollar surge exacerbating them.

For President Trump’s chief economic adviser, Stephen Miran, and economists such as Peking University’s Michael Pettis, the explanation is the dollar’s “global reserve” role. They argue that it prompts exporter nations with excess savings, particularly China, to invest in U.S. assets, with the resulting capital inflows keeping the dollar overvalued and forcing either the federal government or Americans themselves to take on excessive debt—the latter having caused the 2008 financial crisis.

But this isn’t quite right. When foreign companies sell more to the U.S. than they buy, they end up with dollars in cash, which is a U.S. liability. But this is just payment for purchases, it doesn’t imply U.S. importers literally borrowing from overseas. Foreign exporters aren’t refinancing ever-expanding debt: They are selling products and accumulating money in the bank, with little reason to stop—even if those dollars are eventually recycled into other investments.

Meanwhile, actual lending by foreign investors to Americans isn’t recorded in net external balances because there is no net increase in liabilities: The U.S. issues debt but receives cash in return. This is why the link between external deficits and credit booms is actually hard to find.

Take Britain’s vote to leave the European Union in 2016: The pound crashed instantly as investors priced in diminished growth expectations, yet trade and debt refinancing carried on uninterrupted despite a huge external deficit. 

Indeed, changes in exchange rates and net international investment positions have shown no correlation over the past decade outside of the U.S. either, according to cross-country data from the International Monetary Fund.

As for the greenback’s special role, it has coexisted with both weak and strong exchange rates since President Richard Nixon suspended gold convertibility in 1971. Dollar appreciation since 2014 has coincided with foreign Treasury holdings staying flat.

To be sure, there are cases in which foreign inflows push up the currency and worsen the external position. Conversely, the current weakening of the dollar could help narrow the deficit.

The point, though, is that exchange rates are driven by many factors. Forecasts of U.S. return-on-equity have strongly correlated with the dollar’s value over the past decade, while also worsening the net international investment position: Foreigners have poured into U.S. stocks—counted as liabilities—that have surged thanks to the economy’s strength and Silicon Valley’s global edge, reflected in April’s $25.8 billion services surplus. It is hard to argue that higher returns should lead a country’s currency to depreciate.

The dollar’s struggle to remain at historically elevated levels doesn’t depend on rebalancing anything.