The decline in U.S. manufacturing isn't just about labor costs. A crucial, overlooked factor is the disparity in savings. While Americans consumed, nations like China saved and invested in capital goods like factories, making their labor more productive and thus more attractive for manufacturing investment.

Global demand for dollars as the reserve currency forces the U.S. to run persistent trade deficits to supply them. This strengthens the dollar and boosts import power but hollows out the domestic industrial base. A future decline in dollar demand would create a painful economic transition.

The decline in the U.S. net foreign asset position is often attributed solely to trade deficits. However, a major driver was the appreciation of foreign investments in the U.S. equity market, which outperformed global markets and thus increased the value of U.S. liabilities to the world.

Contrary to models where capital should flow to high-growth developing countries, it moves from these nations to rich, 'investor-friendly' ones like the US and UK. These developed economies run trade deficits while developing ones become net lenders, an inversion of the expected global financial order.

For decades, the U.S. earned more on its overseas assets than it paid to foreign investors, despite owing more than it owned—a unique financial anomaly. This positive primary income balance has now turned negative, signaling a structural shift in the U.S.'s financial relationship with the world.

By establishing the dollar as the world's reserve currency after WWII, the U.S. gained the unique power to run huge debts and print money. This effectively forced other countries holding and trading dollars to absorb the inflationary costs of U.S. spending, funding the 'American dream' at global expense.

Promises of foreign investment to build factories in the US are not funded by new money. Foreign entities sell their large holdings of US Treasury bonds to raise the cash for the real investment, creating upward pressure on interest rates.

Talk of de-dollarization ignores the reality of the U.S. current account deficit, which requires selling over a trillion dollars in financial assets annually. As long as the world buys these dollar-denominated assets (debt and equity), the dollar's dominance is structurally reinforced, not diminished.

Howard Lutnick reframes the trade deficit as a long-term transfer of national wealth. The U.S., an "inventor island," pays a "producer island" for goods, which then uses that money to buy up the inventor's assets. The key metric is the $26T net negative international investment position, not just the flow of goods.