I've been reading Henry Hazlitt's Economics in One Lesson and he said something about free trade and tariffs that I don't quite understand.
He uses the example of buying cheaper English sweaters over more expensive domestic sweaters. He says, "By buying English sweaters they furnish the English with dollars to buy American goods here. This is in fact the only way in which the British can eventually make use of these dollars."
I guess this another way of saying current account deficit = capital account surplus. That makes sense. What I don't understand is why importing goods from other countries necessitates that they invest that money back in the US. In his example, why are we able to pay other countries in American dollars instead of, say, British pounds, but the British are only permitted to pay the US in US dollars?
I hope this question makes sense. Thanks for any clarification you can provide.