AS DONALD TRUMP sees it, America’s trade deficit is a sign of economic weakness, proof that lousy trade deals have sent production overseas. But Uncle Sam does not just import goods from the rest of the world and send nothing in return (though that would be a lucrative arrangement). Rather, the net inflow of goods is matched by a net outflow of stocks, bonds and other financial assets.
That makes America a debtor. In theory the interest and dividends paid to foreigners should chip away at national wealth in future. Since 1989 foreigners have owned more assets in America than Americans have owned overseas; in the jargon, the net international investment position (NIIP) has been negative. But America is an unusual borrower. For almost all of that time, it has received more income on its overseas investments than it has paid out to foreigners. This is strange: it is akin to someone’s savings earning more than enough interest to service his far bigger debts.
This contrast is getting starker (see chart). In recent years the NIIP has tumbled to -44% of GDP, the lowest since 1976, when the data begin. Yet net primary income—the returns—has held…Continue reading