Lower Trade Deficits and More Foreign Investment?

There is something worse than everybody wanting to come to your country: that’s if everybody tried to avoid it. America is not at this point, but there is a play about that in a theater of the absurd near you.

Official figures show a significant drop in foreign tourists coming to America this year compared to the same period last year. The Economist writes (“Have Foreign Tourists Really Avoided America This Year?” August 26, 2025):

Foreign arrivals at [20 major] American airports are down by 3.8% compared with 2024, or 1.3m fewer people. The slump was steepest between May and July, when arrivals fell by 5.5% year on year. That bucked the global trend as tourism finally recovered to pre-pandemic levels.

The drop was especially steep from Canada at 7.4%, or 13.2% if we consider only the summer (May to July, year on year). Trips by road fell even more. Air arrivals from Europe are down more than 2%.

Interestingly, more Americans have traveled abroad. The conjunction of the two trends will have caused a reduction in the international balance of tourist trade and, thus, in the international balance of goods and services compared to what it would otherwise have been. For protectionists, this should be a matter of great concern. Perhaps another emergency decree is needed to subsidize foreign tourists and intimidate Americans into staying here?

I suspect that many supporters of protectionism don’t realize that what foreign tourists spend in America is an American export. Just like for exports of goods, receiving tourists from abroad (whether for business, pleasure, study, or medical reasons) uses resources belonging to American residents in order to produce goods and services for foreigners. Not surprisingly, foreign tourism in America is entered as exports in official statistics.

American residents travelling abroad provide the mirror image: they use resources belonging to foreigners—hotel rooms, Airbnb accommodations, food, entertainment, souvenirs, and so forth. Of course, they pay for that: any trade is a two-way street. This simply confirms the benefits of exchange: each party gives away what he values less for something he values more. It is not surprising that the expenditures of American tourists abroad are recorded as imports in official figures. A prohibition of American travel abroad would “save” an estimated $248 billion in the annual balance of international trade.

This elementary analysis suggests that the whole protectionist doctrine is a sham or an absurdity. So is the goal of having foreign corporations invest in the US—which they will do anyway voluntarily in a free country. Moreover, foreign investment is the mirror image of trade deficits, but let’s ignore this to focus on another contradiction. If the police start raiding foreign companies’ factories as happened last Thursday in Georgia, the dystopia imagined at the beginning of this post will get closer (see “Hundreds Arrested in Immigration Raid at Hyundai Site in Georgia,” Wall Street Journal, September 5, 2025).

The raided battery factory under construction is part of a joint venture between Hyundai and LG Energy Solution, two South Korean companies. The majority of the 475 individuals arrested were South Korean nationals, including about 50 LG employees (the others were employed by contractors). Are the arrested individuals “the worst of the worst”? Not necessarily, it seems:

Asked about the raid, Trump said that the people arrested were immigrants who entered the country illegally. “We had as I understand it a lot of illegal aliens,” he said. “Some not the best of people. But we had a lot of illegal aliens working there.”

Another Wall Street Journal story (“How the Immigration Raid at Hyundai’s Factory Complex Unfolded,” September 6, 2025) reports on some consequences:

LG Energy said Saturday it was suspending most business trips to the U.S. and directing employees on assignment in the U.S. to return home immediately or stay put in their accommodations.

It would be another matter, of course, if there had been ongoing murders, rapes, torture, and other real crimes in the raided factory. The story also quotes a few other phrases that have deep significance:

“We have a warrant for this entire construction site, OK?” said an officer who wore a neck gaiter and sunglasses. “We’re Homeland Security. We have a search warrant for the whole site. We need construction to cease immediately.”

For one thing, it is as if the immigration police were proudly saying that, this time, they are not doing anything illegal. At any rate, the image of masked police raiding factories isn’t how people used to think about America.

The South Korean nationals arrested—some of whom were shackled!—had committed such unspeakable crimes that, we learned on Sunday, a “deal” with the US government will allow them to be repatriated by their government (“South Korea Charters Plane to Repatriate Workers After US Battery Factory Raid,” Financial Times, September 7, 2025).

An objection to my argument could be that, as much as trade deficits are a matter of “national emergency,” repelling foreigners represents a more pressing one. Note that, following James Buchanan and Friedrich Hayek, I am not arguing for totally free immigration; see my post “The Strangers Who Live Among You.” What I am arguing, against both the left and the right, is this: if the glorification of state power doesn’t verge on tyranny, it certainly tips into the absurd.

One might think that the absurd is not a concept belonging to public choice theory, but this is not sure. Politicians and bureaucrats pursuing mainly their own self-interest, while rationally ignorant and Condorcet-handicapped voters stagger for “the public interest,” can produce a chaotic walk into policy space. “Anything can happen” (emphasis in original), wrote political scientist Richard McKelvey and economist Norman Schofield. “Anything” includes absurdities but also possibly revolutions and civil wars. (See William Riker’s classic book Liberalism Again Populism or my Regulation review [pp. 54-57], a poor but more accessible second-best.)

******************************