No. of Recommendations: 15
So then, here's a little illustration of unintended consequences.
Trump likes making deals. I mean, he certainly likes announcing deals, and it seems very integral to his political identity. Hence, one of the main early things to come out of his trip to the Middle East is the announcement of a big investment by Saudi Arabia in the U.S.:
https://www.whitehouse.gov/fact-sheets/2025/05/fac...Here's the thing, though - foreign investment in the U.S. makes trade deficits worse,
ceteris paribus. It's the basic national financial identity (in an open economy like ours) - your trade deficit is equal to your investments minus net savings. If you create an exogenous demand for increased investment in the U.S. (like jawboning the Saudis into buying US assets...I mean, investing in our economy), you increase the trade deficit. The Saudis have to buy dollars to make their investments, which makes the dollar a little stronger vs. other currencies, which makes imports go up and exports go down. It all has to balance (which is why it's an identity).
Part of the reason why we run such a huge trade deficit is because there is so much demand to invest in the U.S. - not just in
public debt, which is often the subject of this discussion, but also investment in private assets. So when you go out and convince the Saudis to increase their FDI in the U.S., you end up making the trade deficit worse.
