The US can spend more than it earns by borrowing – its domestic assets are immense - and can do this for quite a while. But it cannot spend more than it earns without borrowing and that is what it seems now to want to do. There will be difficulties in maintaining the high required rates of capital inflow if the US sends out negative signals on the desirability of foreign investment:
The numbers leave little doubt as to the extraordinary contrast between the two economies. Last year China saved about half of its gross domestic product, or some $1.1 trillion. At the same time, the U.S. saved only 13% of its national income, or $1.6 trillion. That's right, the U.S., whose economy is six times the size of China's, can't manage to save twice as much money.
And that's just looking at national averages that include saving by consumers, businesses, and governments. The contrast is even starker at the household level - a personal saving rate in China of about 30% of household income, compared with a US rate that dipped into negative territory last year (–0.4% of after-tax household income).
But as part of a pattern of other anti-foreign actions in Washington, fears remain that the United States is becoming a less welcoming place for investment from overseas.
"We need a net inflow of capital of $3 billion a day to keep the economy afloat," said... a former trade official in the Reagan administration who is president of the Economic Strategy Institute. "Yet all of the body language here is 'go away.'
Indeed very negative signals are being sent out. Most prominently this week the decision by Dubai Ports, a United Arab Emirates-owned maritime company, at the center of a furious port security controversy, bowed to pressure from Congress on Thursday and announced it would sell off its U.S. operations to an American owner. The announcement had come just hours after House and Senate Republican leaders bluntly told President Bush that Congress would kill the company's $6.8 billion acquisition of London-based Peninsular & Oriental Steam Navigation Co. and its operations at six major US ports.
“It may be well part of a global backlash against globalization," said Michael Grenfell, a partner at the law firm Norton Rose in London. "America could usually be relied on to champion free trade. If that changes, things could get quite chilly."
In the United States, the political flap over the ports deal is still not over…. members of Congress had submitted some two dozen bills in the last few weeks aimed at changing the review process for foreign investment.
Many, without being specific, could end up blocking all kinds of deals. A bill submitted in the House by Duncan Hunter, Republican of California, and H. James Saxton, a Republican from New Jersey, for example, would bar foreign-controlled concerns from buying any company that operated "critical infrastructure," which could include everything from water and energy companies to those involved in telecommunications. "It's almost certain that one or another of those bills will pass,"…."The question is whether it will have sufficient votes to override a veto by the president."
There might be reasonable strategic or security-related concerns here but there also seems to be a measure of anti-globalisation sentiments in the US. This should hasten the US dollar’s decline and spark the need for markedly higher interest rates.