The fact is, however, that the trade deficit has nothing to do with unfair trade and everything to do with the world’s confidence in the U.S. economy. If anything, annual trade deficits mean the United States is winning hundreds of billions of dollars in net inflows of foreign investment every year. Inward investment — rather than export growth — is the real prize of international competition and it tends to reward good policies.
The United States has long been the world’s premiere destination for foreign direct investment. In 2017, the accumulated stock of FDI in the United States surpassed $4 trillion, which accounts for nearly 25 percent of the total global stock. By comparison, the second largest destination is Hong Kong, which accounts for 6 percent. China and the United Kingdom account for roughly 5 percent each.
With one out of every four dollars of global FDI invested in U.S. subsidiaries of foreign headquartered companies (“international companies”), the United States enjoys economic advantages that no other country has. A reportpublished this morning by the Organization for International Investmentdocuments the significant contributions of these companies to the U.S. economy.
These international companies tend to be among the best in their industries, having succeeded in their home markets before taking their best practices and testing their mettle abroad. They have contributed disproportionately to U.S. economic performance over the years, as observed across of variety of objective measures. Even though these entities as a group comprise a mere 1.3 percent of all U.S. businesses, collectively they punch well above their weight, accounting for:
- 5.5 percent of all private‐sector employment
- 6.5 percent of U.S. GDP (private‐sector value added)
- 14.8 percent of U.S. private‐sector employee benefits
- 16.0 percent of new private‐sector, non‐residential capital investment
- 16.7 percent of private‐sector research and development spending
- 17.1 percent of all corporate federal taxes paid
- 23.5 percent of U.S. exports
- 24.3 percent higher worker compensation than the U.S. private‐sector average
These direct contributions — and there are many more telling statistics in the report — provide only a partial picture of the impact of international companies on the economy.
The full story must take into account the related economic activity that is spurred upstream of these companies with their suppliers, vendors, and intermediate goods’ providers, as well as the activity generated downstream through the spending of their employees. It must also consider the effects of these companies on the U.S. economy over time through the reactions of domestic companies rising to the challenge of new competition, the residual benefits delivered through technology spillovers, the adoption of best practices in governance and workplace management, and the hybridization and evolution of ideas that make companies more efficient, more pioneering, and more exciting places to work.