If your goal is to reduce the trade deficit, then your goal must also be reducing flows of foreign investment into the United States. When the US consumes and invests more than it produces, it must be running a current account deficit. To finance the deficit, the US sells assets to the rest of the world, and capital flows into the US from abroad.
It is also helpful to consider an intertemporal context. Today, the US wants to invest more than it saves, so it must attract foreign capital. For that foreign capital to exist, the rest of the world must be saving some of its output and income. So, some of the output of foreign nations flows into US markets.
Foreign direct and portfolio investments are votes of confidence from other nations in the US economy and, more broadly, in the United States as a whole. These investments make workers more productive—increasing their wages and incomes—and make US firms more competitive. Because the trade deficit and foreign investment in the US are linked, waging war on the former is waging war on the latter. The consequence of that war is to reduce the wages of US workers and the incomes of US households.
Stop calling it a trade ‘deficit’ 📈
Start calling it a capital surplus. 💰
The U.S. benefits from foreign investment! Why would we want to reduce our capital surplus??
Let’s not shoot ourselves in the foot 💥 pic.twitter.com/9Hduap25G8
— Romina Boccia (@RominaBoccia) April 7, 2025