Trade Deficit Worry Warts Ignore $26 TRILLION in Foreign Investment

COMMENTARY Trade

Trade Deficit Worry Warts Ignore $26 TRILLION in Foreign Investment

Jul 2nd, 2013 1 min read
COMMENTARY BY

Former Jay Van Andel Senior Policy Analyst in Trade Policy

Bryan served as an advocate for free trade through his research at The Heritage Foundation.

The U.S. Bureau of Economic Analysis (BEA) recently reported that job-creating foreign investment in the United States is approaching $26 trillion. In the first quarter of 2013, the value of foreign investment in the United States increased by $394 billion. That includes investments in U.S. stocks and bonds, government securities, and direct investment.

News reports often focus on only one aspect of U.S. commerce with other countries. But foreign trade and investment are two sides of the same coin, and both make Americans better off. For example, there were plenty of reports about the so-called trade deficit of $124 billion in the first quarter of the year. But after adding foreign investment and other international transactions, this deficit vanishes.

Let’s look at the total of these international transactions:

In the first quarter of 2013, Americans sent a total of $1.1 trillion to other countries for goods and services, new investments, and money transfers to people outside the United States. But people in other countries also sent a total of $1.1 trillion to the United States for goods and services, new investments, and money transfers to people in the United States. Maybe Americans bought more goods and services from foreigners, and foreigners made more investments in the United States, but the combined total of all these international transactions was the same. Both Americans and foreigners got what they wanted, and everyone was better off.

Instead of worrying about the makeup of foreign dollars that are spent in the United States—whether they are used to buy wheat, cars, factories, or bonds—U.S. policymakers should make it their goal to reduce barriers to economic freedom.

This piece originally appeared in The Daily Signal