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Here’s one way to look at our America’s international trade situation:
1. The US receives more of foreigners’ production of goods and services than they get of ours, which results in a net inflow of foreign-produced goods and services every year.
2. The US also receives more of foreigners’ investment capital than they get of ours, which results in a net inflow of investment capital from abroad.
Protectionists, Peter Navarro and Trump then complain about America’s “trade deficit” for merchandise, but never mention the surplus for services, nor the surplus of foreign investment capital.
Consider a country like Japan’s international trade situation.
1. Japan exports more of its domestically-produced goods and services to foreigners every year than it receives from abroad, which results in a net outflow of domestically-produced goods and services.
2. Japan also sends out more of its investment capital to other countries every year than it receives from abroad, which results in a net outflow of investment capital.
Protectionists, Peter Navarro and Trump then claim that they want the US to emulate Japan’s trade situation to “Make America Great Again.”
Update: At the Cafe Hayek blog, Don Boudreaux helps to summarize my main point above about why a net inflow of goods and capital is not something to be upset about and in fact has an economically beneficial outcome for Americans:
If the voluntary economic decisions of Americans and foreigners result in a U.S. current-account (“trade”) deficit – which is to say, a U.S. capital-account surplus of the very same amount – Americans should not be upset. The reason is that a U.S. capital-account surplus means that the American economy is a net recipient, not only of imports, but also of capital. And being a net recipient of capital is not only not necessarily a bad thing for Americans, but is likely a good thing.
The chart below (I’ll do a separate post later on that chart) helps to demonstrate the main point I was trying to make by showing: a) the increase over time in the value of US assets owned by foreigners that results from the inflow of foreign capital that offsets America’s trade deficit for goods, and b) the relentless rise in the net worth (assets minus liabilities) of US households and businesses over the last 40 years.
Bottom Line: America’s trade deficits (net inflows of goods) and foreign investment surpluses (net inflows of capital) have been accompanied by an America that is becoming wealthier, not poorer. President Trump, Peter Navarro and Americans should not be upset or complain about these economic outcomes, but should instead celebrate and rejoice in our good fortune, and rising wealth and prosperity.
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