Relationship between trade deficit and borrowing I have seen lots of essays saying that trade deficit means the nation needs foreign funds to finance their imports. In other words, they need to borrow from the foreigners. However, it sounds very unintuitive to me. My concern is that why would do they have to borrow? I always thought financing trade deficit was all about transferring the ownership of financial assets. Of course, if you count the sale of financial assets as borrowing, we are good.
We count the sale of financial assets as borrowing. You simply sell a document indicating that you will pay the buyer in the future, which is simply a debt.

Actually, sales of financial assets cause capital account to increase, so that, current account balance is compensated by the sales of financial assets which is basically a capital account surplus. Hence

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Current Account + Capital Account = 0
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