Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

“Foreign Debt” or “Foreign Investment”? How the Trade Deficit Reflects America’s Strength as a Haven for Global Capital

by April 25, 2023
April 25, 2023

Daniel Griswold

America’s annual trade deficit continues to be among the most misunderstood features of the nation’s economy. Trade skeptics tend to blame the deficit for a range of problems, real or imagined, when in fact the current deficit in important ways reflects America’s underlying strength and influence in the world.

The latest example of misplaced worry about the deficit is a recent essay from The Claremont Institute on “Restoring American Manufacturing: A Practical Guide.” The essay attempts to pin at least part of the blame for the relative decline of U.S. manufacturing on persistent U.S. trade deficits. Author David P. Goldman argues that trade deficits also mean the accumulation of unsustainable “foreign debt”:

During the past thirty years, from 1992 through May of 2022, America’s trade balance on goods was a cumulative negative $18 trillion. That is exactly equal to America’s net foreign investment position, also $18 trillion. We have exchanged $18 trillion worth of Treasury bonds, corporate stocks, real estate, and other assets, for $18 trillion worth of goods.

A better term for “foreign debt” is “foreign investment.” In a new Cato Policy Analysis released today, “Balance of Trade, Balance of Power: How the Trade Deficit Reflects U.S. Influence in the World,” co‐​author Andreas Freytag and I explain that what ultimately drives the U.S. trade deficit is the annual net inflow of foreign investment to the United States. Through a persistent surplus in the financial account, foreigners help to finance a share of the federal government’s annual borrowing needs, while also investing in the productive private sector. As we explain in the paper:

The financial account surplus demonstrates confidence in the United States as a haven for global savings. Foreign investment keeps interest rates lower in the United States than they would be otherwise and provides capital to launch new businesses, to fuel research and development, and to expand output for existing firms.

America’s net international investment position is easily sustainable. As we note in the paper, Americans run an annual surplus of more than $200 billion a year in primary income—U.S. earnings on foreign assets compared to what is paid out on foreign‐​owned assets in the United States. As we conclude, “The abiding confidence of global investors remains one of America’s greatest national assets—and the trade balance is a symptom of that strength.”

We go on in the paper to debunk myths about the deficit and “deindustrialization,” the alleged “de‐​dollarization” of global commerce, and the supposed decline of U.S. competitiveness. (The trade‐​skeptical American Compass raised similar fears about the trade deficit, which I critiqued in a previous blog post.)

0
FacebookTwitterGoogle +Pinterest
previous post
Could WhatsApp be banned in Britain as UK law proposes to make platforms end-to-end encryption illegal
next post
Let Your Scans Do the Legwork: Finding Great Stocks to Trade

You may also like

It’s World Trade Week…and (Apparently) the Start of...

May 25, 2023

Locating Islam in the “New” Middle East

February 11, 2025

Congressional Oversight: Document Demands Edition

June 8, 2023

Friday Feature: Nevada School of Inquiry

April 28, 2023

Brazil’s Supreme Court Rewrites the Rules to Censor...

June 27, 2025

Why Is Trump So Intent on Sending Illegal...

April 21, 2025

Democracies, Autocracies, and Same‐​Sex Unions

May 3, 2023

Summarizing Harris’s Policy Book with a Word Count

September 27, 2024

CFPB Targets Overdraft Fees in Biden’s War on...

January 23, 2024

When It Comes to Cash Policies, Actions Speak...

April 5, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Wimbledon winners to pay up to £1.3m in tax as HMRC claims £17m from prize pot

      July 4, 2025
    • Saudi defense minister secretly meets with Trump to discuss Iran de-escalation, Israel: sources

      July 4, 2025
    • Trump administration swarms SCOTUS with emergency requests and sees surprising success

      July 4, 2025
    • Mike Johnson touts ‘beauty of unified government’ after Trump’s ‘big, beautiful bill’ sails through Congress

      July 3, 2025
    • From Oversold to Opportunity: Small Caps on the Move

      July 3, 2025
    • Bank Capital Standards

      July 3, 2025

    Categories

    • Business (8,380)
    • Investing (2,102)
    • Politics (15,941)
    • Stocks (3,189)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved