Gillian Tett’s highlighting of the current investment boom (“America is sucking in growth from the rest of the world”, Opinion, October 10) needs to be placed in the context of the US government’s supposed overall economic framework, as the growth in foreign direct investment is one of the many bizarre aspects of America’s balance of payments accounting identity under President Donald Trump.
Whatever the real size of the increase in FDI going on, the reality is that without a corresponding rise in domestic US savings this means that the US will need to absorb more net capital inflows. If it is primarily coming from a huge increase in net FDI from the rest of the world — unless there is an equally large outflow of portfolio capital from the US — by simple mathematical accounting this means that the US current account deficit will rise further, which indeed it is doing.
Of course, the main element of the current account is the trade deficit. Despite tariffs, it will therefore rise further. So not only is it hard to understand the Trump obsession with tariffs, it is even more difficult to fathom how his team can boast about both tariffs and huge net FDI inflows.
The latter is almost definitely more useful for US productivity but the more FDI inflows take place, the more obvious it becomes that the tariff-based obsession with reducing the trade deficit is doomed to fail.
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