Trump and Foreign Investment in the US

All sorts of foreigners have purchased and keep purchasing U.S. stocks, bonds, and currency. One way foreigners invest in the Unites States is by purchasing commercial real estate in U.S. cities. Because the United States has a greater appetite for investment that the construction of office buildings and manufacturing plants; the purchase of new technologies and equipment; upgrading and replacing old capital foreign capital finances domestic investment.  It is a vote of confidence in the United States economy and, in some sense, in our nation. You most likely haven’t heard Trump criticize international capital flowing into the United States. At least, not directly. But when the president and his administration attack the trade deficit, they are attacking foreign investment in the United States. When we import more than we export, we are consuming and investing more than we produce here at home. To pay for that consumption and investment, we need to borrow money from the rest of the world. We sell the rest of the world assets, and they give us money to pay for the consumption and investment we want and levels more than domestic production. Therefore, trade deficits require inflows of foreign capital. Today, the United States wants to invest more than it saves, so it borrows from abroad, foreign capital enters U.S. markets. For that foreign capital to exist, the rest of the world needs to be saving and not consuming and investing. So, some of their output comes to the United States. Demand for investment that outpaces the supply of savings pushes interest rates up, attracting foreign capital to the United States. But to buy U.S. assets and enjoy their higher interest rates, foreign investors need dollars. No matter what angle is most intuitive, the bottom line is the same: If the president wants to significantly reduce the trade deficit, he also wants to significantly reduce inflows of foreign capital. Waging a war on the trade deficit is waging a war on foreign investment. There are reasons to be concerned about foreign investment in specific cases and circumstances. But as a general matter, we should think of foreign investment as increasing wages and economic growth by making workers and firms more productive. Simply put, we will lose income. We will be made poorer. We will lose the ability to produce goods efficiently, as global supply chains will be disrupted. Wages will lose some of their purchasing power, as the prices of many goods and services will increase. If the president goes too far, other countries will retaliate, leading to even worse outcomes for the working-class voters who are hoping that the president will “make America great again.”