US buyers put cash in property of different international locations, together with “portfolio investment” which focuses on possession of shares and bonds and not using a administration curiosity, and “foreign direct investment” which is proudly owning sufficient of a overseas firm to have a administration curiosity. Conversely, overseas buyers put cash into US greenback property within the US economic system. Erin Whitaker and Tiffany Dang of the US Bureau of Financial Evaluation put togethere the newest knowledge in “A Look at the U.S. International Investment Position: Fourth Quarter and Year 2024” (Survey of Present Enterprise, April 7, 2025).
Right here’s the general image. Simply to be clear, “U.S. Assets” doesn’t imply property owned by the US authorities, however as a substitute is the overseas property owned by all US corporations and people. Conversely, “U.S. Liabilities” doesn’t imply that this can be a debt owed by the US authorities. As a substitute, it’s the sum of the property that what overseas buyers–personal and public–personal throughout the US economic system. Additionally, discover that the vertical axis right here is being measured in trillions of {dollars}: for perspective, complete US GDP in 2025 might be about $28 trillion. We’re speaking about substantial quantities right here. The hole between US property and US liabilities was about $7 trillion again in 2015, however is now about $26 trillion.
Clearly, US liabilities exceed US property, and the hole is rising. What are the implications of that truth in observe? To get a grip on these points, first take a look at a breakdown of those property and liabilities: first the US possession of foriegn property after which the overseas possession of US property.
There are a number of ways in which these totals for property and liabilities can change over time. If the US inventory market goes up, for instance, then the property of overseas buyers within the US inventory market additionally rise in worth. Certainly, the first cause why “US Liabilities” have risen so sharply, and why the hole between US property and liabilities has elevated a lot, is that the US inventory market has been rising a lot sooner than overseas inventory markets, and the worth of holdings of US property by overseas buyers has risen accordingly.
Different components make a distinction as effectively. All of the figures listed here are expressed in {dollars}, so in determining that the overseas investments of US buyers are value, there was an change charge conversion–and shifts in change charges will have an effect on the overall US property.
In some circumstances, property owned out of the country contain a near-term monetary funds; for instance, if a overseas investor owns US Treasury bonds, the investor might be paid curiosity on these bonds. Nevertheless, if a overseas investor owns inventory in a US firm that doesn’t pay dividends, the worth of that inventory can rise and fall with out inflicting a necessity for a cost to that overseas investor.
I’ll focus right here on the returns on direct investments and portfolio investments. As you’ll US buyers holding overseas property have sometimes earned larger charges of return than overseas buyers holding US property–a scenario that the analysis literature calls “exorbitant privilege.”
Right here’s a determine exhibiting the return on direct investments over time, from a distinct Bureau of Financial Evaluation report. The bars present the quantities paid in billions of {dollars}, as measured on the left-hand axis, whereas the strains present the speed of return, measured on the right-hand axis. Clearly, what US buyers are receiving from direct investments overseas is larger than what overseas buyers are receiving.
What in regards to the US return on overseas portfolio investments, and converse, the overseas return on US portfolio investments? Carol C. Bertaut, Stephanie E. Curcuru, Ester Faia, Pierre-Olivier Gourinchas provide new measures of “New Evidence on the US Excess Return on Foreign Portfolios” in a Federal Reserve dialogue paper (Quantity 1398, November 2024). Lookign at knowledge from 2005-2022, they write:
Portfolio returns play an essential function in world wealth dynamics. A key stylized truth, first established by Gourinchas and Rey (2007a), is that the return on US exterior claims constantly exceeds that on US exterior liabilities, the so-called ‘exorbitant privilege.’ A optimistic extra return helps to stabilize the US exterior asset place and makes US present account deficits extra sustainable … Our first discovering is that the US extra return on portfolio (fairness and bond) property averages a modest 0.5% per yr over the complete pattern. It’s considerably larger, averaging 1.7% per yr, after we exclude the pandemic interval (2020-22).
Wanting on the figures above, the overseas portfolio funding in US property is about $17 trillion larger than US portfolio funding in overseas property. Utilizing the over-time common of 0.5% per yr, US buyers can be receiving about $85 billion extra annually from their portfolio investments than overseas buyers are receiving from their US portfolio investments. If one excludes the pandemic and makes use of the extra widespread 1.7% distinction, the hole in portfolio-related beneficial properties can be $289 billion per yr.
The basic cause why US buyers in overseas international locations are receiving larger returns is that they’re keen to tackle extra threat. To oversimplify considerably, you possibly can think about overseas buyers placing cash into bonds issued by the US Treasury and by massive company, whereas US buyers usually tend to be in search of out funding with each higher threat and alternatives for development.
These figures recommend some reorientation of how one thinks about “worldwide commerce. As one more Bureau of Financial Evaluation press launch reviews (February 5, 2025), the US economic system had a commerce deficit in items of $1,211 billion in 2024. This quantity has been the main target of the tariffs that President Trump has introduced. Nevertheless, the US economic system runs a commerce surplus in commerce of providers, totalling $293 billion in 2024. (Though the US commerce deficit in items is taken, a minimum of in White Home political circles, to be full proof of unfair commerce boundaries by different international locations towards US exported items, the US commerce surplus in items, against this, has no implications in any respect as as to if the US is imposing unfair commerce boundaries in providers with regard to US imported items. Go determine.)
Furthermore, funds throughout borders because of direct and portfolio funding additionally favor the US by a number of hundred billion {dollars}. Furthermore, I ought to emphasize that quite a lot of different funds go into what known as the “current account balance,” the broadest measure that mixes worldwide funds associated to commerce in good and providers, in addition to foriegn investments, and likewise consists of remittances that immigrants ship to their house international locations, funds made by overseas insurance coverage corporations, funds between governments, and different classes. For many who need the complete account of the present account stability, a baseline start line is “U.S. International Transactions, 4th Quarter and Year 2024.”
How a lot ought to People fear in regards to the massive and rising hole between US property and US liabilities? Wanting again about 20 years, the hole–that’s, the “net foreign asset position”–was a lot smaller: again round 2005, the hole was about 15% of US GDP, whereas now it’s greater than 90% of US GDP. Twenty years in the past, the hole was a lot smaller, in order that that when the web overseas asset place grew to become considerably bigger and extra unfavorable in a given yr, this transformation was absolutely offset by the upper returns being earned by US buyers holding overseas property. This was “exorbitant privilege.”
However now, thanks principally to overseas possession of US property and the very sturdy rise in US inventory markets, the web overseas asset place has grow to be enormously extra unfavorable at $28 trillion. The speed of return earned by US buyers with overseas property continues to exceed that of overseas buyers holding US property, however that $28 trillion hole is so massive that the extra funds acquired by US buyers in a given yr now not cowl the more and more unfavorable internet overseas asset place. Thus, Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri have a analysis paper forthcoming within the American Financial Evaluate referred to as “The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States.”
As Atkeson, Heathcote, and Perri level out, this truth could alter how you consider the big beneficial properties in US inventory markets. If US shares are primarily owned by US residents, then beneficial properties within the US inventory market redound to the advantage of People. However the rising overseas possession of US inventory markets means that beneficial properties in US shares are growing flowing to overseas buyers, as a substitute. Worldwide diversification of investments has each beneficial properties and tradeoffs.
