Order Code RL32964
CRS Report for Congress
Received through the CRS Web
The United States as a Net Debtor Nation:
Overview of the International Investment Position
Updated August 30, 2005
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

The United States as a Net Debtor Nation:
Overview of the International Investment Position
Summary
The international investment position of the United States is an annual measure
of the assets Americans own abroad and the assets foreigners own in the United
States. The net position, or the difference between the two, sometimes is referred to
as a measure of U.S. international indebtedness. Although this designation is not
strictly correct, the net international investment position does reveal the difference
between the total assets Americans own abroad and total amount of assets foreigners
own in the United States. These assets generate flows of capital into and out of the
economy that have important implications for the value of the dollar in international
exchange markets. Some Members of Congress and some in the public have
expressed concerns about the U.S. net international investment position because of
the role foreign investors are playing in U.S. capital markets and the potential for
large outflows of income and services payments. Some observers also argue that the
U.S. reliance on foreign capital inflows leaves the economy vulnerable to financial
crises. This report will be updated as events warrant.

---

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Valuing Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
International Investment: Sources and Economic Impact . . . . . . . . . . . . . . . . . . . 8
Congressional Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Figures
Figure 1. U.S. Direct Investment Abroad: Estimated Value of Accumulated
Position, 1982-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 2. Foreign Direct Investment in the United States: Estimated
Value of Accumulated Position, 1982-2004 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 3. U.S. Investment Position Abroad and Foreign Investment
Position in the United States, 1983-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 4. Foreign Official and Private Investment Positions in the
United States, 1983-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 5. U.S. and foreign Investment Position, By Major Component, 2004 . . . 8
Figure 6. U.S. Income Receipts and Payments on U.S.-Owned Assets
Abroad and Foreign-Owned Assets in the United States, 2004 . . . . . . . . . . 12
List of Tables
Table 1. U.S. International Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. U.S. International Investment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Saving and Investment in Selected Countries and Areas;
1990-1996 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 4. Estimates of Wealth in the United States, 2003
Current-Cost, Gross Stock Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

---

The United States as a Net Debtor Nation:
Overview of the International
Investment Position
Background
The U.S. international investment position represents the accumulated value of
U.S.-owned assets abroad and foreign-owned assets in the United States measured
on an annual basis at the end of the calendar year. Some observers refer to the net
of this investment position (or the difference between the value of U.S.-owned assets
abroad and the value of foreign-owned assets in the United States) as a debt, or
indicate that the United States is in a net debtor position, because the value of
foreign-owned assets in the United States is greater than the value of U.S.-owned
assets abroad. In fact, the nation’s international investment position is not a measure
of the nation’s indebtedness similar to the debt borrowed by some developing
countries, but it is an accounting of assets. By year-end 2004, the latest year for
which data are available, the overseas assets of U.S. residents totaled approximately
$8.7 trillion, while foreigners had acquired about $11.3 trillion in assets in the United
States, with direct investment measured at historical cost. As a result, the U.S. net
international investment position was about $2.6 trillion in the negative, as indicated
in Table 1.
Foreign investors who acquire U.S. assets do so at their own risk and accept the
returns accordingly, unlike the debt owed by developing countries where debt service
payments are guaranteed in advance. The returns on the assets in the investment
position, except for bonds, are not guaranteed and foreign investors gain or lose on
them similar to the way U.S. domestic investors gain or lose. As Table 1 indicates,
these investments include such financial assets as corporate stocks and bonds,
government securities, and direct investment1 in businesses and real estate. The
value of these assets, measured on an annual basis, can change as a result of
purchases and sales of new or existing assets; changes in the financial value of the
assets that arise through appreciation, depreciation, or inflation; changes in the
market values of stocks and bonds; or changes in the value of currencies. The
1 The United States defines foreign direct investment as the ownership or control, directly
or indirectly, by one foreign person (individual, branch, partnership, association,
government, etc.) of 10% or more of the voting securities of an incorporated U.S. business
enterprise or an equivalent interest in an unincorporated U.S. business enterprise. 15 CFR
§ 806.15 (a)(1). Similarly, the United States defines direct investment abroad as the
ownership or control, directly or indirectly, by one person (individual, branch, partnership,
association, government, etc.) of 10% or more of the voting securities of an incorporated
business enterprise or an equivalent interest in an unincorporated business enterprise. 15
CFR § 806.15 (a)(1).

---

CRS-2
Department of Commerce also uses three different methods for valuing direct
investments that yield roughly comparable estimates for the net position, although
the three methods do provide estimates on U.S. direct investment abroad and foreign
direct investment that can be considerably different at times.
Table 1. U.S. International Investment Position
(in millions of dollars)
Type of Investment
2001
2002
2003
2004
Net international investment position of the United States:
With direct investment at current cost
-1,919,430
-2,107,267
-2,156,703
-2,484,219
With direct investment at market value
-2,339,448
-2,455,114
-2,372,370
-2,542,245
With direct investment at historical cost
-1,977,688
-2,178,482
-2,252,156
-2,605,028
U.S.-owned assets abroad:
With direct investment at current cost
6,308,681
6,645,679
7,640,986
9,052,796
With direct investment at market value
6,930,484
6,807,849
8,296,638
9,972,783
With direct investment at historical cost
6,075,950
6,401,761
7,370,335
8,749,410
U.S. official reserve assets
129,961
158,602
183,577
189,591
U.S. Government assets, other
85,654
85,309
84,772
83,556
U.S. private assets:
With direct investment at current cost
6,093,066
6,401,768
7,372,637
8,779,649
With direct investment at market value
6,714,869
6,563,938
8,028,289
9,699,636
With direct investment at historical cost
5,860,335
6,157,850
7,101,986
8,476,263
Direct investment abroad:
At current cost
1,693,131
1,860,418
2,062,551
2,367,386
At market value
2,314,934
2,022,588
2,718,203
3,287,373
At historical cost
1,460,400
1,616,500
1,791,900
2,064,000
Foreign securities
2,169,735
2,079,891
2,953,778
3,436,718
Bonds
557,062
705,226
874,356
916,655
Corporate stocks
1,612,673
1,374,665
2,079,422
2,520,063
U.S. claims by US nonbanking concerns
839,303
902,002
596,961
801,536
U.S. claims reported by US banks
1,390,897
1,559,457
1,759,347
2,174,009
Foreign-owned assets in the United States:
With direct investment at current cost
8,228,111
8,752,946
9,797,689 11,537,015
With direct investment at market value
9,269,932
9,262,963 10,669,008 12,515,028
With direct investment at historical cost
8,053,638
8,580,243
9,622,491 11,354,438
Foreign official assets in the United States
1,109,072
1,250,977
1,567,124
1,981,992
Foreign private assets:
With direct investment at current cost
7,119,039
7,501,969
8,230,565
9,555,023
With direct investment at market value
8,160,860
8,011,986
9,101,884 10,533,036
With direct investment at historical cost
6,944,566
7,329,266
8,055,367
9,372,446
Direct investment in the United States:
At current cost
1,518,473
1,517,403
1,585,898
1,708,877
At market value
2,560,294
2,027,420
2,457,217
2,686,890
At historical cost
1,344,000
1,344,700
1,410,700
1,526,300
U.S. Treasury securities
375,059
473,503
543,209
639,716
U.S. other securities
2,821,372
2,779,067
3,408,113
3,987,797
Corporate and other bonds
1,343,071
1,530,982
1,707,206
2,059,250
Corporate stocks
1,478,301
1,248,085
1,700,907
1,928,547
U.S. currency
279,755
301,268
317,908
332,735
U.S. liabilities by U.S. nonbanking concerns
798,314
892,574
454,317
581,258
U.S. liabilities reported by U.S. banks
1,326,066
1,538,154
1,921,120
2,304,640
Source: Nguyen, Elena L., The International Investment Position of the United States at Yearend
2004, Survey of Current Business, July 2005. p. 37.

---

CRS-3
Valuing Investments
The Department of Commerce provides updated estimates on the nation’s
international investment position each year, typically in July, based on data for the
previous year through the end of the calendar year. Except for direct investment, all
of the accounts in the international investment position are estimated directly by the
Department of Commerce’s Bureau of Economic Analysis (BEA) relative to readily
observable market prices. For example, the value of positions in portfolio
investments (securities), gold, loans, currencies, and bank deposits can be directly
estimated by the BEA based on the face values or market prices of recent
transactions.
Estimating the value of direct investments, however, presents a number of
challenges. According to the Department of Commerce, these challenges arise
because foreign direct investments, “typically represent illiquid ownership interests
in companies that may possess many unique attributes — such as customer base,
management, and ownership of intangible assets — whose values in the current
period are difficult to determine, because there is no widely accepted standard for
revaluing company financial statements at historical cost into prices of the current
period.”2
As a result, the Department of Commerce estimates the U.S. international
investment position in three ways, reflecting three different accounting methods for
estimating the value of direct investments: historical cost; current cost; and market
value. Initially, direct investments are valued at historical cost, or the cost at the time
of the investment. This historical cost value can become outdated because it is not
updated to account for changes in the value of an investment through appreciation,
or through internal growth and expansion, or through changes in various intangible
assets. The current cost approach estimates the value of capital equipment and land
at their current replacement cost using general cost indexes, and inventories, using
estimates of their replacement cost, rather than at their historical cost. The third
measure, market value, uses indexes of stock market prices to revalue the owners’
equity share of direct investment.
For the most part, the current cost and historical cost estimates have tracked
closely together for U.S. direct investment abroad and for foreign direct investment
in the United States, as indicated in Figures 1 and 2, respectively. These two
measures of direct investment demonstrate a steady increase in the value of the
investments over the 23-year period from 1982 to 2004. The market value estimate
of direct investment, however, displays a markedly different pattern. These estimates
spiked during the rapid runup in stock market values in the 1990s and then dropped
sharply when market values declined at the end of the 1990s. The market value
estimates rose sharply again in 2003 and 2004, as the rebound in stock market values
pushed up the estimated market value of firms. Since the early 1980s, the annual
value of foreign direct investment in the United States has been greater at times than
2 Nguyen, Elena L., “The International Investment Position of the United States at Yearend
2004,” Survey of Current Business, July 2005. p. 37.

---

CRS-4
the annual value of U.S. direct investment abroad, but the accumulated value of U.S.
direct investment abroad, or the position, has continuously been valued higher.
Figure 1. U.S. Direct Investment Abroad: Estimated Value
of Accumulated Position, 1982-2004
Billions of dollars
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
1982
1987
1992
1997
2002
Current cost
Market value
Historical cost
Source: Department of Commerce
Figure 2. Foreign Direct Investment in the United States:
Estimated Value of Accumulated Position, 1982-2004
Billions of dollars
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
1982
1987
1992
1997
2002
Current cost
Market value
Historical cost
Source: Department of Commerce

---

CRS-5
Investment Patterns
Foreign direct investment in U.S. businesses surged in the mid-1980s and has
at times outpaced the annual amount of U.S. direct investment abroad. For various
reasons, U.S. direct investment abroad and foreign direct investment in the United
States have tended to track together so that the annual flows increase or decrease
somewhat in tandem.3 Since 2000, U.S. direct investment outflows have been greater
than similar inflows. As a whole, however, foreign investment among all U.S. assets
has been greater than U. S. investment abroad, which has tended to push the net U.S.
international investment position further into a negative position. This is not the first
time in the nation’s history that the U.S. net international investment position has
been negative.
Early in the nation’s history as the United States made the transition from being
a developing economy to being a major economic superpower, foreign investment
flowed into capital development projects such as railroad and canal construction
which aided the westward expansion and the development of heavy industries. By
1920, foreigners had withdrawn many of their assets from the United States to
finance World War I, which turned the United States into a net creditor. This net
creditor position grew unabated after World War II and into the 1980s, when large
inflows of foreign investment once again turned the nation into a net international
investment debtor.
The U.S. net debtor status continued to grow through the 1990s and into the
2000s, as indicated by Figure 3. By year-end 2004, U.S. assets abroad are estimated
to have reached $8.7 trillion, while foreign owned assets in the United States reached
$11.3 trillion. As a result, the U.S. net international investment position was
estimated at a negative $2.6 trillion, or equivalent to about 21% of U.S. Gross
Domestic Product, marking a substantial increase in the relative size of the net
investment debt position over the previous decade, as indicated in Table 2. The net
investment position worsened by nearly $350 billion during 2004, with direct
investment measured at historical cost. According to the two other measures for
direct investment — current cost and market value — the net investment position
was valued at about negative $2.5 trillion. A similar decrease in the net international
investment position in 2005, which seems possible, could push the net position to
more than a negative $3 trillion.
3 See CRS Report RL32461, Outsourcing and Insourcing Jobs in the U.S. Economy:
Evidence Based on Foreign Investment Data, by James K. Jackson.

---

CRS-6
Figure 3. U.S. Investment Position Abroad and
Foreign Investment Position in the United
States, 1983-2004
Trillions
$12
$10
$8
$6
$4
$2
$0
1993
1995
1997
1999
2001
2003
US assets
Foreign-owned assets
Source: Department of Commerce
Table 2. U.S. International Investment Status
(billions of dollars)
Foreign-
U.S. Net
Relative Share
U.S. Gross
U.S.-Owned Owned Assets International
of U.S. Gross
Domestic
Assets Abroad in the United
Investment
Domestic
Product
States
Position
Product
1980
929.8
569.0
360.8
5,161.7
7%
1985
1,287.4
1,233.1
54.3
6,053.7
1%
1986
1,469.4
1,505.6
-36.2
6,263.6
-1%
1987
1,646.5
1,726.5
-80.0
6,475.1
-1%
1988
1,829.7
2,008.1
-178.5
6,742.7
-3%
1989
2,070.9
2,330.4
-259.5
6,981.4
-4%
1990
2,179.0
2,424.3
-245.3
7,112.5
-3%
1991
2,286.5
2,595.7
-309.3
7,100.5
-4%
1992
2,331.7
2,762.9
-431.2
7,336.6
-6%
1993
2,753.6
3,060.6
-307.0
7,532.7
-4%
1994
2,987.1
3,310.5
-323.4
7,835.5
-4%
1995
3,486.3
3,944.7
-458.5
8,031.7
-6%
1996
4,032.3
4,527.4
-495.1
8,328.9
-6%
1997
4,567.9
5,388.6
-820.7
8,703.5
-9%
1998
5,090.9
5,990.9
-900.0
9,066.9
-10%
1999
5,965.1
6,740.6
-775.5
9,470.3
-8%
2000
6,231.2
7,620.0
-1,388.7
9,817.0
-14%
2001
6,308.7
8,228.1
-1,919.4
9,890.7
-19%
2002
6,645.7
8,753.0
-2,107.3
10,074.8
-22%
2003
7,641.0
10,669.0
-2,156.7
10,381.3
-23%
2004
9,052.8
12,515.0
-2,484.2
11,733.0
-21%
Source: Department of Commerce

---

CRS-7
The foreign investment position in the United States continues to increase as
foreigners acquire additional U.S. assets and as the value of existing assets
appreciates. These assets are broadly divided into official and private investments
reflecting transactions by governments among themselves and transactions among
the public. At times, some observers have been concerned about the amount of
foreign official investment in the U.S. economy, particularly in U.S. Treasury
securities. As Figure 4 indicates, official asset holdings were valued at nearly $2
trillion in 2004, or about 16% of the total foreign investment position, a share that
has remained relatively stable over the 12-year period of 1993 to 2004. Official
assets include such monetary reserve assets as gold, the reserve position with the
International Monetary Fund (IMF), and holdings of foreign currency. An important
component of foreign official holdings in the United States is the acquisitions of U.S.
Treasury securities by foreign governments. At times, such acquisitions are used by
foreign governments, either through coordinated actions or by themselves, to affect
the foreign exchange price of the dollar. Foreign currency holdings account for a
relatively small share of the total foreign investment position.
Figure 4. Foreign Official and Private Investment
Positions in the United States, 1983-2004
Trillions
$10
$8
$6
$4
$2
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Foreign official assets Foreign private assets
Source: Department of Commerce
Private asset holdings are comprised primarily of direct investment in businesses
and real estate, purchases of publicly traded government securities, and corporate
stocks and bonds. As indicated in Figure 5, the composition of U.S. assets abroad
and foreign-owned assets in the United States is different in a number of ways. The
strength and uniqueness of the U.S. Treasury securities markets make these assets
sought after by both official and private foreign investors, whereas U.S. investors
hold few foreign government securities. As a result, foreign official assets in the
United States far outweigh U.S. official assets abroad. Both foreign private and
official investors have been drawn at times to U.S. government securities as a safe
haven investment during troubled or unsettled economic conditions.

---

CRS-8
Figure 5. U.S. and foreign Investment Position, By
Major Component, 2004
US Assets
Foreign Assets
Total = $9.1 trillion
Total = $11.5 trillion
Official assets
Direct invest.
Govt. securities
Bonds
Stocks
Nonbanks
US banks
$3
$2
$1
$0
$1
$2
$3
Trillions
Trillions
Source: Department of Commerce
Of all the accounts, inward and outward direct investments are the most closely
matched, demonstrating the appeal of such investments to both U.S. and foreign
investors. In fact, the United States is unique in that it not only is the largest foreign
direct investor in the world, but it is also the largest recipient of direct investment in
the world. Foreign investors have also been attracted to U.S. corporate stocks and
bonds for the same reasons domestic U.S. investors have invested in them.4 The
decline in the overall value of U.S. corporate stocks after 2000, however, curbed the
rate of growth of foreign purchases of these assets. A similar decline in the value of
foreign stocks and the depreciation in the value of the U.S. dollar relative to a broad
range of currencies reduced the dollar value of American-owned stock holdings
abroad. Claims by private banks are also included in the international investment
accounts and represent a broad range of international financial transactions, including
financing for short-term trade credits associated with exports and imports of
merchandise goods.
International Investment:
Sources and Economic Impact
International investment not only has an impact on the U.S. economy, but it is
affected by the economy. For U.S. investors, foreign markets provide them with
4 For additional information, see CRS Report RL32462, Foreign Investment in U.S.
Securities, by James K. Jackson.

---

CRS-9
opportunities to seek out the greatest returns for their investments, returns which are
repatriated back to the United States. In addition, U.S. direct investment abroad, for
the most part, tends to stimulate U.S. exports, which in turn stimulates the most
productive sectors of the economy.5 U.S. direct investment abroad is highly sought
after by developing countries which want the capital not only to supplement their
own limited domestic sources, but they also want American technology and
expertise.
Foreign capital inflows augment domestic U.S. sources of capital, which, in
turn, keep U.S. interest rates lower than they would be without the foreign capital.
Indeed economists generally argue that it is this interplay between the demand for
and the supply of credit in the economy that drives the broad inflows and outflows
of capital. As U.S. demands for capital outstrip domestic sources of funds, domestic
interest rates rise relative to those abroad, which tends to draw capital away from
other countries to the United States.
The United States has also benefitted from a surplus of saving over investment
in many areas of the world that has provided a supply of funds. This surplus of
saving has been available to the United States because foreigners have remained
willing to loan that saving to the United States in the form of acquiring U.S. assets,
which have accommodated the growing current account deficits. Over the past
decade, the United States experienced a decline in its rate of savings and an increase
in the rate of domestic investment, as indicated in Table 3. The large increase in the
Nation’s current account deficit would not have been possible without the
accommodating inflows of foreign capital.
As Table 3 indicates, compared with the 1990-1996 period, U.S. saving in 2004
declined by 2% of gross domestic product (GDP), while investment increased by
1.5% of GDP. This shift toward greater investment relative to saving was
accommodated by an increase worldwide in saving relative to investment. Among
other advanced economies and the newly industrialized economies in Asia, both
saving and investment declined in 2004 relative to the 1990-1996 period, but
investment declined more as a share of GDP than did saving, so in relative terms
saving increased as a share of GDP. In the emerging developing economies and in
the developing economies of Asia, saving as a share of GDP increased faster than did
investment, which also increased in these areas. The large inflows of foreign capital
to the United States likely arise from the relatively more robust economic growth that
occurred in the United States compared with almost any other area, the well-
developed U.S. financial system, and the overall stability of the U.S. economy.
5 For additional information, see CRS Report RL32461, Outsourcing and Insourcing Jobs
in the U.S. Economy: Evidence Based on Foreign Investment Data, by James K. Jackson

---

CRS-10
Table 3. Saving and Investment in Selected Countries and
Areas; 1990-1996 and 2004
(Percentage of Gross Domestic Product)
Average,
Area/Country
2004
Change
1990-1996
World
Saving
22.9
24.9
2.0
Investment
24.0
24.6
0.6
United States
Saving
15.6
13.6
-2.0
Investment
18.1
19.6
1.5
Other Advanced Economies
Saving
23.7
22.7
-1.0
Investment
23.6
21.3
-2.3
Eurozone
Saving
21.4
20.9
-0.5
Investment
21.3
20.2
-1.1
Japan
Saving
32.4
27.6
-4.8
Investment
30.2
23.9
-6.3
Newly Industrialized Asian Economies
Saving
34.1
30.3
-2.8
Investment
32.6
24.9
-7.7
Emerging Developing Economies
Saving
25.2
31.5
6.3
Investment
27.5
29.2
1.7
Developing Asia
Saving
30.7
38.2
7.3
Investment
32.8
35.5
2.7
China
Saving
40.6
46.4
5.8
Investment
38.8
43.9
5.1
Source: The Economic Outlook, the Congressional Budget Office, August 2005. p. 39.
Capital inflows also allow the United States to finance its trade deficit because
foreigners are willing to lend to the United States in the form of exchanging the sale
of goods, represented by U.S. imports, for such U.S. assets as stocks, bonds, and U.S.
Treasury securities. Such inflows, however, put upward pressure on the dollar,
which tends to push up the price of U.S. exports relative to its imports and reduce the
overall level of exports. Furthermore, foreign investment in the U.S. economy drains
off some of the income earned on the foreign-owned assets that otherwise would
accrue to the U.S. economy as foreign investors repatriate their earnings back home.
Some observers are particularly concerned about the long-term impact of the
U.S. position as a net international investment debtor on the pattern of U.S.
international income receipts and payments. In 2004, the United States received
$368 billion in income receipts on its investments abroad and paid out $344 billion

---

CRS-11
in income payments on foreign-owned assets in the United States for a net surplus
of $24 billion in income receipts. Considering the overall negative balance of the
U.S. net investment position, the net surplus of income receipts is surprising. As the
annual amount of foreign investment in the U.S. economy continues to exceed the
amount of U.S. investment abroad, however, it seems inevitable that U.S. payments
on foreign-owned assets will rise to the point where they exceed U.S. receipts. There
are no estimates of when such a turn-around in income payments will occur, but a net
outflow of income payments eventually will act as a drag on the national economy
as U.S. national income is reduced by the net amount of funds that are channeled
abroad to foreign investors.
Part of the reason for the current surplus in income receipts stems from the large
income receipts the nation receives on U.S. direct investments abroad. Although the
historical cost value of U.S. direct investment abroad and foreign direct investment
in the U.S. are roughly equal, the United States earned $132 billion more on its assets
abroad in 2004 than foreigners earned on their direct investments in this country, as
indicated in Figure 6. The Department of Commerce has analyzed data on direct
investment to determine the source of the low rate of return of foreign direct
investment relative to U.S. direct investment abroad.6 This analysis concluded that
the gap in the rate of return between U.S.-owned enterprises abroad and foreign-
owned enterprises in the United States is narrowing over time and seems to be related
to the age of the investment, or that as foreigners’ investments mature the rate of
return of the assets approaches that of U.S. direct investment abroad.
6 Mataloni, Raymond, Jr., “An Examination of the Low Rates of Return of Foreign-Owned
U.S. Companies,” Survey of Current Business, March 2000, p. 55-73; and Landefeld, J.
Steven, Ann M. Lawson, and Douglas B. Weinberg, “Rates of Return on Direct
Investment,” Survey of Current Business, August 1992, p. 79-86.

---

CRS-12
Figure 6. U.S. Income Receipts and Payments on U.S.-
Owned Assets Abroad and Foreign-Owned Assets in the
United States, 2004
US Receipts
US Payments
Direct investment
Other private assets
U.S. Government
Royalties
$250 $200 $150 $100 $50
$0
$50 $100 $150 $200 $250
Millions of dollars
Millions of dollars
Source: Department of Commerce
The U.S. net surplus of income receipts arising from direct investments was
offset to a large extent by large net income payments to foreign holders of U.S.
government securities, which grew to slightly more than $84 billion in 2004,
compared with the $3 billion the United States received on similar assets owned
abroad. The overall U.S. income surplus was further reduced by the income
payments made to foreign holders of U.S. corporate stocks and bonds. The United
States received $125 billion in income from the corporate stocks and bonds
Americans owned abroad, but paid out over $146 billion to foreign holders of U.S.
corporate securities, for a net outflow of $21 billion in income payments on such
assets. In addition, the United States received $51 billion in royalties in 2004 on
various products and on U.S.-licensed production technology, patents, and
copyrighted material. This was more than double the $23 billion the United States
paid foreigners in royalties on their investments in the United States.
Some observers also are concerned about the extensive amount of foreign
investment overall in the U.S. economy and in U.S. financial assets. According to
the estimates provided in Table 4, foreigners own approximately 16% of total U.S.
wealth. Although foreign investors own a little more than 6% of total U.S. fixed
private capital stock, they own substantially larger shares of U.S. financial assets.
For instance, foreign investors now own nearly 40% of total U.S. Federal debt and

---

CRS-13
more than half of the outstanding publicly-traded U.S. Treasury securities.7 Some
observers argue that such investments could spur an economic crisis in this country
should foreign investors decide to pull their money out of the investments, whether
for economic or political reasons. This possibility seems remote, however, given the
negative impact such an action might have on the foreign investors themselves, but
the concerns remain.
Table 4. Estimates of Wealth in the United States, 2003
Current-Cost, Gross Stock Values
(billions of dollars, percent)
Foreign
Foreign
Item
Total
Owned
Share
Fixed Private Capital
$24,823.7
$1,585.9
6.4%
Nonresidential
$11,698.3
$1,585.9
13.6%
Agriculture, Forestry, and Fisheries
$448.6
$2.0
0.4%
Mining
$631.9
$34.0
5.4%
Construction
$190.6
$5.9
3.1%
Manufacturing
$1,832.9
$475.0
25.9%
Transportation
$880.1
$23.2
2.6%
Wholesale Trade
$380.4
$182.0
47.8%
Retail Trade
$732.7
$24.2
3.3%
Finance, Insurance, Real Estate
$910.3
$185.6
20.4%
Services
$2,679.1
$151.1
5.6%
Residential
$13,125.4
Farms
$85.6
Real Estate
$13,039.8
Fixed Government Capital
$6,493.2
Equipment
$742.1
Structures
$5,751.1
Consumer Durable Goods
$3,376.3
Financial Assets
$25,846.2
$8,212.1
31.8%
Federal Debt, Publicly Held
$3,950.0
$1,533.0
38.8%
Corporate Stocks
$15,497.0
$1,700.9
11.0%
Corporate Bonds
$6,399.2
$1,707.2
26.7%
Other
$3,271.0
Total
$60,539.4
$9,798.0
16.2%
Source: Nguyen, Elena L., The International Investment Position of the United States at Yearend
2004, Survey of Current Business, July 2005. p. 37; Lally, Paul R., Fixed Assets and Consumer
Durable Goods for 1993-2003, Survey of Current Business, September 2004. p. 29-42; Foreign
Direct Investment in the United States, Detail for Historical-Cost Position and Related Capital and
Income Flows, 2003. Survey of Current Business, September 2004. p. 96-98; Flow of Funds
Accounts of the United States, June 9, 2005; Treasury Bulletin, June 2005. Table FD-1. p. 24.
7 For additional information, see CRS Report RL32462, Foreign Investment in U.S.
Securities, by James K. Jackson.

---

CRS-14
Congressional Response
Despite expressing concerns at times about the U.S. net international investment
position, Members of Congress generally have been reluctant to intervene in the
investment process, whether inward or outward. Indeed, successive Congresses and
Administrations have led international efforts to eliminate or reduce restraints on the
international flow of capital. If the U.S. net investment position continues to turn
more negative, prospects increase that the positive U.S. net income receipts will turn
negative as U.S. income payments overwhelm U.S. income receipts. In such a case,
the U.S. economy will experience a net economic drain as income that could be used
to finance new U.S. businesses and investments will be sent abroad to satisfy foreign
creditors. Such a drain likely will be small at first relative to the overall size of the
economy, but it could grow rapidly if the economy continues to import large amounts
of foreign capital.
Some observers are also concerned about the growing role foreign investment
is playing in the economy by bridging the gap between domestic sources and
demands for credit. One chief consideration is how the capital is being used.
Investment funds that are flowing into direct investment and into corporate stocks
and bonds presumably are being used to bolster investments in plant and equipment
and other investments that aid in corporate productivity over the long run. As such,
those investments may well provide a boost to U.S. economic growth well into the
future. Foreign investment in U.S. Treasury securities directly aid in financing the
Federal government’s budget deficits and indirectly ease the Federal government’s
demands on domestic credit markets, which assists U.S. firms and consumer
consumption by freeing up capital in the economy and by relieving some of the
pressure on domestic interest rates.
Some observers contend that a sharp decline in capital inflows or a sudden
withdrawal of foreign capital from the economy could spark a financial crisis.
Congress likely would find itself embroiled in any such financial crisis through its
direct role in conducting fiscal policy and in its indirect role in the conduct of
monetary policy through its supervisory responsibility over the Federal Reserve.
Such a coordinated withdrawal seems highly unlikely, particularly since the vast
majority of the investors are private entities that presumably would find it difficult
to coordinate a withdrawal. Short of a financial crisis, events that cause foreign
investors to curtail or limit their purchases of U.S. securities likely would complicate
efforts to finance budget deficits in the current environment without such foreign
actions having an impact on U.S. interest rates, domestic investment, and long-term
rate of growth.

---