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Or sign-in if you have an account.U.S. President Donald Trump exits Marine One after landing at the Ellipse near the White House on Aug. 9, 2026 in Washington, D.C. Photo by Tasos Katopodis/Getty ImagesDonald Trump’s economic policies are based on many flawed assumptions. Among the worst is that the U.S. trade deficit mainly reflects its trading partners’ unfair tactics. The truth is that macroeconomics is to blame.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorThe problem is investment flows. When foreigners decide they want to invest in the dynamic, lower-tax U.S. economy, that raises U.S. incomes and the value of the dollar, which leads to higher U.S. imports or lower U.S. exports, or both. Which means the U.S. trade deficit doesn’t fall and may even rise. In fact, capital inflows do seem to explain the current state of the U.S. economy, where rising foreign purchases of stocks keep widening the trade deficit despite Trump’s protectionism.The outstanding feature of the U.S. economy today is the surge of capital spending related to new technologies, notably AI. American technology companies, led by the so-called “Magnificent Seven” of Nvidia, Apple, Alphabet, Amazon, Meta, Microsoft and Tesla, dominate the sector. For years, Canada and many European and Asian countries have tried in vain to duplicate the success of these American tech behemoths. Many foreign investors have instead shifted to the next best strategy of buying into the equity of these U.S. tech companies, which gives them a share of profits even though capital spending by these firms largely stays in the U.S.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe result has been a seismic change in how the U.S. finances its trade deficits. Data from the U.S. Bureau of Economic Analysis show that before 2022 the U.S. mostly issued debt to cover its deficits. In 2006, non-residents held over twice as much U.S. debt as equities (US$6.1 trillion to US$2.8 trillion). But over the past decade the U.S. increasingly has sold equity stakes to foreign investors. By 2025, non-resident investment in stocks had surged to US$22.1 trillion, well ahead of their debt holdings of US$16.1 trillion (over half of which is U.S. federal government debt).Selling equity stakes to foreign investors allows the U.S. to finance higher domestic spending without committing itself to an onerous schedule of debt repayments. That’s especially important given the recent rise in long-term interest rates. In return, the U.S. shares its technology companies’ earnings with foreigners, which their record profits have easily allowed, so far.Rising inflows of foreign capital inevitably boost spending in the U.S., as companies invest their new financing and household spending is buoyed by rising incomes and buoyant stock market wealth. But all this spending raises imports, widening the U.S. trade deficit despite the administration’s repeated efforts to impose tariffs on imports or in some cases completely block them. When Trump first took office, in 2016, the U.S. current account deficit was $0.4 trillion. Last year, after nearly a decade of tariffs and protectionism, it had tripled to $1.2 trillion, mostly because the deficit on goods trade (as opposed to services) grew from $0.7 trillion to $1.3 trillion.The narrative that the U.S. capital account surplus is driving its current account deficit fits the facts much better than the Trump administration’s focus on nefarious foreign actors. Unfair trade practices that block U.S. exports and subsidize goods sold into the U.S. may be a valid description of U.S. trade with China, whose repeated violations of fair-trade principles should disqualify it from membership in the World Trade Organization. But it does not explain America’s trade deficits with most other nations. And the idea that U.S. firms are hamstrung in their ability to compete internationally is hard to reconcile with foreigners’ eagerness to invest in American companies. Their enthusiasm reflects how American tech firms dominate most global markets — except now for Alphabet and Meta, which have abandoned China’s market rather than submit to autocratic dictates.If rising capital inflows really are the reason the U.S. trade deficit remains stubbornly high, then all the ill will and damage Trump’s trade war has caused in U.S. relations with its allies was both unnecessary and doomed to fail from the start. The U.S. trade deficit is not a reflection of how U.S. companies have been hornswoggled by foreign competitors but testament to the fundamental success of leading U.S. firms in attracting foreign investment.Philip Cross is a senior fellow at the Macdonald-Laurier Institute. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.