I understand that by cutting taxes for workers, entrepreneurs, investors and companies more money is to be spent into the productive economy.
But how does this relate to foreign investments? How does a foreign investment contributes to one own’s economy? Is this wealth that leaves the country? Or is it still an asset?
I have read that export must always equal import and that subsidizing export is basically giving away free goods.
Maybe my question is not clear but I hope to hear some insights. Sorry if my knowledge is only limited but I’m here to learn, as I was neglected Austrian economics in every school in government education
First, say there is no money in the world, only barter. For you to invest in another country, meaning gain ownership of some property there, you will have to give them something of yours in return. You and your trading partner will only do it if you both think “I will get richer from this.”
So in one sense wealth has left the country, what you gave them to acquire their property, but on the other hand you have gotten some of their property, which will bring you profits. So wealth has not “left the country”.
Now some might say “But he could have invested in American property. Why did he invest in China [say] giving them the jobs and his money? How unpatriotic to leave us all impoverished and enrich the Chinese.”
Well, if you chose to invest in China, it means you think you will make more money there. So by your best estimate, investing in America will impoverish you. There is nothing patriotic in getting poor.
“But what are we going to do? Starve?”
“Make it worth my while to invest here.”
Export must always equal imports in the long run. Because people trade by giving away one good in exchange for the other.
But in the short run, people may give away a good in return for a PROMISE to get another good in the future. When the Chinese sell us their wares and accept American money in return, the idea is that one day they will spend that money in the US on things they want. That’s how we can import more than we export, because the Chinese have not yet taken from us what they want in exchange.
Subsidising export means the Chinese govt, say, decide to give their factory owners money if they will sell cheaper to the US. In other words, instead of the US citizen paying full price for the TV set he buys from China, the Chinese govt will pay for part of it. It is indeed a free gift to the US citizenry.
What makes us productive and prosperous (compared to people two centuries ago) is accumulated capital. Eg we already have heavy machinery we can use to help ourselves making everything else (construction for example) much easier. Foreign investment is foreigners granting us the use of their accumulated capital (eg they build something with their superior machinery in our country, faster and easier than we could have done it). It is a shortcut to developing and catching up with the most prosperous countries. Imagine super advanced aliens from the planet Industrios landing on Earth and building a super-duper advanced factory here.
The problem with is that often foreign investors will secure for themselves special privileges with the government of the country they are investing in. (Or buy a company that already enjoys privileges.) But this is the problem of government, not the problem of accumulated capital crossing borders.
