Global Free Trade: America's Faustian Bargain

Substack ^ | June 7, 2025 | Spencer P. Morrison

[LibertyFound]

Unfortunately, this lesson is also lost on America’s leaders. America is selling hundreds of billions worth of assets—everything from shares in New York’s largest companies to Iowa’s best farmland—every year to pay for our trade deficit. For example, foreign investors now own some 40% of all U.S. equities. This has skyrocketed up from just 12% in 2007.

Likewise, Americans are selling enormous amounts of real estate to pay for foreign production. In 2019 alone, foreigners purchased $183 billion in American real estate. America is selling its heritage and its economic lifeblood for cheap Chinese trinkets. We are selling our soul for convenience.

The fourth, and final, way that countries can acquire foreign production is by promising to pay for it in the future. In other words, by buying it on credit with debt. This last option is how America funds the bulk of its trade deficit. Consider that foreigners now own 33% of America’s national public debt, worth $7.7 trillion. Likewise, America’s household debt has climbed to unprecedented levels.

Debt is especially dangerous because not only does the borrower need to repay the principle, but will also need to repay the interest owed. This inflates the cost of buying foreign products in a way that most economists fail to appreciate. Consider that America became a debtor nation in 2006—for the first time since the Great Depression.

This means that America paid more money in interest to foreign holders than it received from abroad. Currently, America pays ~$150 billion to foreigners each year in interest on our national public debt. This is about one quarter the value of our trade deficit, and it too is increasing every year.

[PGR88]

the man described half of Triffin’s Dilemma

When your currency is the world’s reserve currency (or the major one), foreigners will want, and need, your currency, to do business and transact in the world. Not only with America itself, but among each other. When China buys oil from Saudi Arabia, they still (mostly) do that transaction in US dollars

It builds up a huge demand for US dollars, and assets denominated in US dollars.

So the USA must supply the world with dollars. How? By trade

But as mentioned, it’s a dilemma, or paradox. The USA can’t infinitely supply dollars to the world - at some point we devalue the dollar and/or ship our entire manufacturing base to the rest of the world. And then the game ends.