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CPA Op-ed: Too Much Foreign Capital is Hurting America's Economy

March 14, 2019

The current trade negotiations between Washington and Beijing are more than a year in the making.

Op-ed by Michael Stumo, originally appeared in The Columbus Dispatch on March 12, 2019

March 14, 2019

Starting in 2018, the Trump administration imposed tariffs on $250 billion worth of imports from China. It was President Donald Trump’s stern response to Beijing’s continual export of billions of dollars in goods to the United States while purchasing little in return. The president has frequently described this as a “bad deal” for America. Considering that the U.S. trade deficit with China exceeded $400 billion in 2018, he has a point.

There’s also another way in which America is being duped in the global marketplace. Not only is the U.S. continually importing a massive amount of goods from overseas, but America’s financial markets also are serving as a dumping ground for global capital. Countries like China, Japan, Germany and South Korea — nations that earn large profits on exports to the United States — are continually spending their excess capital on U.S. stocks, bonds and other assets.

That may sound like a good thing, particularly for Wall Street. But in fact, this excess capital is wreaking havoc on U.S. manufacturers and agricultural producers.

Right now, Germany, China and other major Asian exporting nations are awash in savings. In part, that’s because they’ve adopted economic policies aimed at producing more goods than their citizens can consume. But they also tightly manage their economies. As a result, they’re holding vast amounts of capital derived from exports to the U.S. Rather than loan this money internally, however, they instead channel it into America’s financial markets.

In 2005, Fed Chairman Ben Bernanke recognized this as an emerging problem — what he described as a “global savings glut.” Foreign entities are continually purchasing dollar-backed assets. And one consequence of all this spending is that it keeps driving up the dollar’s value.

When the dollar increases in value, U.S.-produced goods and farm commodities become more expensive in the global marketplace. Conversely, imports become artificially cheaper in the U.S. market. This hurts U.S. manufacturers and farmers trying to compete against overseas producers.

Americans can see the results of this unbalanced trade every day in idled U.S. factories and the endless imports that line the shelves of Walmart and Target.

Wall Street enjoys this excess capital, though, since it flows into numerous bond and securities markets. But an overvalued dollar hits Main Street hard because it makes U.S. goods, services and labor increasingly expensive overseas. American companies and workers are among the most productive and innovative in the world, but they’re fighting a losing battle against such massive inflows of capital.

Realistically, all of this extra money functions as toxic waste in the global marketplace. Other countries refuse this excess, so America has become the prime dumping ground. America’s workers don’t even benefit, because this capital is being channeled into financial assets rather than factories and projects that could employ millions.

President Ronald Reagan confronted a similar trade problem 35 years ago. In the face of escalating trade deficits, his administration negotiated the 1985 Plaza Accord. That agreement lowered the dollar’s exchange value against several leading currencies and temporarily eliminated the U.S. trade deficit.

All of the foreign capital currently flooding into the U.S. is weaponizing the dollar against America’s own companies and workers. President Trump should follow Reagan’s lead and move swiftly to tackle an overvalued dollar. Tariffs have helped to create more manufacturing jobs in 2018 than in the past 10 years, but they have not solved the trade deficit. It’s past time to solve the dollar problem and create millions of good-paying jobs, achieve broadly shared prosperity and preserve America as the world’s premier economy for many years to come.

Michael Stumo is CEO of the Coalition for a Prosperous America.


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  • Warren Platts
    One simple thing we could do is to tax the non-resident alien investors’ capital gains in the US stock market. Currently, their profits flow overseas perfectly tax free. That is just unbelievably stupid. I cannot imagine a possible rationale for that.

    The problem with the trade deficit is this identity: S – I = NX

    What we don’t want to do is increase savings. There is already too much savings. And the main way to increase savings is to transfer more of the national income from labor’s share to wealthy people. This is also called austerity.

    Thus we need to lower investment I. The way we do that is raise capital gains on both American and foreign investors to at least the same rate as earned income. This will encourage the rich to consume more. (And there should be fat tariffs on luxury items only superrich people buy like yachts and small jets to make sure they buy their toys from America.)

    But there should maybe be a tax break on investment income earned overseas, maybe even 0%. That would encourage Americans to invest in real projects overseas than chasing the tail of ever rising asset prices here. Americans are the ones who should be funding railroads in Africa and canals in Nicaragua.

    Such a strategy should ultimately lead to a net outflow of savings out of the United States. That might sound like a bad thing to the uninitiated or a typical free trade propagandist, but it would be for the best. There is plenty of U.S. savings available to fund new, desired, productive projects in the real economy here. Any American startup that can show investors a roadmap to success and profit can find funding. The shortage is in the startups!

    A net outflow of U.S. savings would also necessarily result in a trade surplus. I am no mercantilist, but we need to run a modest surplus for a while to make up for the decades of trade deficits. Our NIIP is already close to 60%. Not good, and it will take a while to dig back out of that hole….