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Snapshot for October 13, 1999

The U.S. trade position and foreign-owned assets

Although structural trade problems account for the long-term decline in the U.S. trade balance, the appreciation of the dollar caused by increased foreign capital inflows (i.e., foreign investment in the United States) has exacerbated the recent growth in the U.S. trade deficit over the past few years. These annual increases in the flow of foreign assets (i.e., net purchases) into the United States in the 1990s are shown in the first figure; the resulting cumulative increases in the stock of foreign ownership (i.e., liquid liabilities) of U.S. financial assets are shown in the second figure below.

Foreign purchases of U.S. assets soared from under $200 billion per year in 1990-92 to about $300 billion per year in 1993-94, finally climbing to $500-800 billion annually from 1995-98.

U.S. Treasury securities were a major part of these foreign purchases in the 1993-96 period; private purchases, especially of stocks and bonds, dominated the foreign purchases in 1997-98. These inflows of foreign capital in turn led the stock of foreign financial assets in the U.S. to jump from under $3 trillion in 1994 to over $5 trillion in 1998. These enormous capital inflows were largely responsible for pushing up the value of the dollar and causing the U.S. trade deficit to escalate between 1995 and 1998.

Source: EPI analysis of U.S. Department of Commerce and Bureau of Economic Analysis data.

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