… is from Gerard Gayou’s November 16, 2018, essay in the Wall Street Journal titled “A Trade Deficit Isn’t a Mortgage“:
First, the trade deficit reflects only one side of a national accounting ledger. Whereas a homeowner might never see his money or house again after repaying the bank for a reverse mortgage, that’s not true for nation-states. When Americans send dollars abroad to buy Chinese shoes, those dollars will likely come back in the form of capital inflows.
That’s why the U.S. capital account, which measures net investment in the country, has a capital surplus equal to the U.S. trade deficit. Chinese shoe salesmen who receive American dollars choose to reinvest greenbacks in dollar-denominated assets. This investment then produces more factories and jobs in the U.S. – something protectionists inexplicably ignore.
DBx: To pick a negligible nit, Gayou, in the second paragraph above, should instead have written “That’s why the U.S. capital account, which measures net investment in the country, has a capital surplus equal to the U.S. current-account deficit.” This nit is indeed negligible because “trade deficit” is often used as a synonym – mistakenly but forgivably in most discussions – for “current-account deficit.”