The Secretary of State, Hillary Clinton, is pushing for more trade and investment in Asia as a counter to Chinese influence. That’s really a big part of what the Trans Pacific Partnership (TPP) trade agreement is about. Kind of a modified containment strategy aimed at China, the dominant power in the reason.
The fatal problem with this approach is that we need trade surpluses to engage in net investment abroad.
It is simple math, though most don’t know this. There is a mirror-image link between net trade balance and net foreign investment.
1. IF a country exports more than it imports (net export status) on the trade side, THEN on the investment side that country has more outgoing private foreign investment than incoming foreign investment. In other words with a net export status on the trade side, we take in more foreign cash (and also foreign debt obligations to us). To balance the excess cash, in rough terms we export dollars in the form of private investment. In other words, the net inflow of dollars through sales is balanced by a net outflow of dollars through investment or credit.
2. We are in the reverse situation. IF a country is a net importer on the trade side, THEN we are also a net importer of private foreign investment. While we still engage in private investment abroad, there is more foreign money coming into the country. The net inflow of foreign investment roughly equals our net inflow of goods.
My view, and the view of many, is that trade agreements are more of a foreign policy tool than an economic policy tool. Presidents and their State Departments want alliances with countries, and use trade agreements as part of the diplomacy, tying us together. The problem is that we lose so many industries as we “bribe” those countries by way of giving them access to our domestic market without receiving similar volumes of foreign sales.
China’s money is flowing all over the world because they are a trade surplus country. If they were a trade deficit country, their investment in Africa, South America, the Caribbean, etc. would simply not be an issue.
Thus… Clinton’s and Obama’s strategy is fatally flawed, because (1) the TPP will likely worsen our trade deficit or at least it won’t help and (2) the fact of our trade deficit means we can’t be a substantial foreign investor (because we are a net recipient of foreign investment).
If the U.S. is to reclaim its status as a global hegemonic power, with the economic power to back that up, it needs to run trade surpluses. Trade surpluses (1) allow our economy to grow; (2) earn the foreign cash to pay for our foreign military exploits as we try to be the world’s policeman; and (3) enable us to be a net foreign investor (as Hillary Clinton).