The United States has a phenomenally growing dependence on foreign capital.
Whereas the negative balance of the international investment position used to be only 1.2 trillion (December 2007), it has grown to 20 trillion by early 2024!
Understanding the Negative Balance of the U.S. International Investment Position
The balance is negative when external liabilities (net investment by non-residents in the U.S.) exceed external assets (net investment by residents in the outside world) in all items (direct, portfolio, and other investments). A negative balance means that the U.S. is a net international debtor, and the rate of foreign capital inflows exceeds the rate of resident capital deployment in the outside world.
The negative balance began to gradually increase from 2011 to 2015 (from 2.7 trillion to 5.8 trillion). By Q2 2018, the balance was minus 8 trillion and finally came off the chain from Q2 2018 to Q4 2021 (from 8 trillion to 18.8 trillion or almost 11 trillion in 3.5 years.
After stabilizing in 2022, beginning in Q1 2023, the negative balance began to increase again to over 20 trillion.
Analysis of External Assets and Liabilities
In 4Q 2023, the US had 34.5 trillion in external assets with 54.3 trillion in liabilities, among which direct investment had 10.8 trillion in assets and 14.9 trillion in liabilities, portfolio investment had 15.3 trillion in assets and 28.7 trillion in liabilities, and other investment had 5.4 trillion in assets and 8.6 trillion in liabilities.
The U.S. remains extremely voracious for foreign investment, the pace of which has doubled since 2020 relative to the 2010 - 2019 average pace, but the U.S. has lost interest in outward investment.
Since 2018, the U.S. has become more self-enclosed in terms of resident actions, where residents are financing mostly domestic cash gaps, and for a complex set of reasons, are not interested in international expansion and globalization the way they were from 1995 to 2007.
This can be traced back to the build-up of the negative balance of the IIP. This pattern of behavior coincided with the sharp aggravation of the US geopolitical track since 2018 (sharp increase in confrontation with China).
Conclusion
Dependence on foreign capital has increased significantly, with the international investment deficit rising from 1.2 trillion in 2007 to 20 trillion by 2024. This negative balance, indicative of net international debtor status, has been steadily increasing since 2011 and will peak at over 20 trillion in early 2024. Despite the accelerated attraction of foreign investment, since 2018 the U.S. has shown declining interest in foreign investment, signaling a shift toward self-isolation.