A new report offers bad news for those concerned about trade deficits. Data from the U.S. Bureau of Economic Analysis show that foreign investment in the United States has reached a record high of nearly $35.5 trillion.
That total includes $8.9 trillion in direct investment in U.S. factories and other facilities, $8 trillion invested in shares of U.S. companies, and $6.3 trillion in U.S. Treasury security assets.
The value of this international investment is routinely ignored by politicians who say trade deficits mean America is “losing” at trade.
When Americans trade with people in other countries, dollars can either be used to buy U.S. exports or to invest in our economy. If overseas customers prefer to buy our exports, it shows up as a so-called improvement in our trade balance. If overseas customers instead prefer to buy shares of Ford Motor Company or to build factories here, our trade deficit increases.
This explains why a trade deficit does not mean that the U.S. is “losing.” Americans benefit whether our trading partners buy more of our products and the trade deficit decreases, or they invest more in the United States and our trade deficit increases.
Current federal policies may contribute to a growing trade deficit. If the Trump administration’s tax and regulatory reforms are successful, more global companies will want to invest in the United States. This could increase the trade deficit, since our trading partners would be using more of their dollars to invest here instead of buying American exports.
If federal deficit spending continues to increase, our trading partners are likely to use more of their dollars to purchase U.S. Treasury securities instead of to buy U.S. exports or invest in the private sector. This also could increase the trade deficit.
Under President Trump, foreign investment in the United States is at an all-time high. The Trump administration should continue to advance policies that show America is truly open for business instead of engaging in a mistaken crusade to eliminate the trade deficit.