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US investors put money in assets of other countries, including “portfolio investment” which focuses on ownership of stocks and bonds without a management interest, and “foreign direct investment” which is owning enough of a foreign company to have a management interest. Conversely, foreign investors put money into US dollar assets in the US economy. Erin Whitaker and Tiffany Dang of the US Bureau of Economic Analysis put togethere the most recent data in “A Look at the U.S. International Investment Position: Fourth Quarter and Year 2024” (Survey of Current Business, April 7, 2025).

Here’s the overall picture. Just to be clear, “U.S. Assets” does not mean assets owned by the US government, but instead is the foreign assets owned by all US firms and individuals. Conversely, “U.S. Liabilities” does not mean that this is a debt owed by the US government. Instead, it is the sum of the assets that what foreign investors–private and public–own across the US economy. Also, notice that the vertical axis here is being measured in trillions of dollars: for perspective, total US GDP in 2025 will be about $28 trillion. We are talking about substantial amounts here. The gap between US assets and US liabilities was about $7 trillion back in 2015, but is now about $26 trillion.

Clearly, US liabilities exceed US assets, and the gap is growing. What are the implications of that fact in practice? To get a grip on these issues, first look at a breakdown of these assets and liabilities: first the US ownership of foriegn assets and then the foreign ownership of US assets.

There are several ways that these totals for assets and liabilities can change over time. If the US stock market goes up, for example, then the assets of foreign investors in the US stock market also rise in value. Indeed, the primary reason why “US Liabilities” have risen so sharply, and why the gap between US assets and liabilities has increased so much, is that the US stock market has been rising much faster than foreign stock markets, and the value of holdings of US assets by foreign investors has risen accordingly.

Other factors make a difference as well. All the figures here are expressed in dollars, so in figuring out that the foreign investments of US investors are worth, there has been an exchange rate conversion–and shifts in exchange rates will affect the total US assets.

In some cases, assets owned in another country involve a near-term financial payments; for example, if a foreign investor owns US Treasury bonds, the investor will be paid interest on those bonds. However, if a foreign investor owns stock in a US company that doesn’t pay dividends, the value of that stock can rise and fall without causing a need for a payment to that foreign investor.

I’ll focus here on the returns on direct investments and portfolio investments. As you’ll US investors holding foreign assets have typically earned higher rates of return than foreign investors holding US assets–a situation that the research literature calls “exorbitant privilege.”

Here’s a figure showing the return on direct investments over time, from a different Bureau of Economic Analysis report. The bars show the amounts paid in billions of dollars, as measured on the left-hand axis, while the lines show the rate of return, measured on the right-hand axis. Clearly, what US investors are receiving from direct investments abroad is higher than what foreign investors are receiving.

What about the US return on foreign portfolio investments, and converse, the foreign return on US portfolio investments? Carol C. Bertaut, Stephanie E. Curcuru, Ester Faia, Pierre-Olivier Gourinchas offer new measures of “New Evidence on the US Excess Return on Foreign Portfolios” in a Federal Reserve discussion paper (Number 1398, November 2024). Lookign at data from 2005-2022, they write:

Portfolio returns play an important role in global wealth dynamics. A key stylized fact, first established by Gourinchas and Rey (2007a), is that the return on US external claims consistently exceeds that on US external liabilities, the so-called ‘exorbitant privilege.’ A positive excess return helps to stabilize the US external asset position and makes US current account deficits more sustainable … Our first finding is that the US excess return on portfolio (equity and bond) assets averages a modest 0.5% per year over the full sample. It is significantly higher, averaging 1.7% per year, when we exclude the pandemic period (2020-22).

Looking at the figures above, the foreign portfolio investment in US assets is about $17 trillion higher than US portfolio investment in foreign assets. Using the over-time average of 0.5% per year, US investors would be receiving about $85 billion more each year from their portfolio investments than foreign investors are receiving from their US portfolio investments. If one excludes the pandemic and uses the more common 1.7% difference, the gap in portfolio-related gains would be $289 billion per year.

The fundamental reason why US investors in foreign countries are receiving higher returns is that they are willing to take on more risk. To oversimplify significantly, you can imagine foreign investors putting money into bonds issued by the US Treasury and by big corporation, while US investors are more likely to be seeking out investment with both greater risk and opportunities for growth.

These figures suggest some reorientation of how one thinks about “international trade. As yet another Bureau of Economic Analysis press release reports (February 5, 2025), the US economy had a trade deficit in goods of $1,211 billion in 2024. This number has been the focus of the tariffs that President Trump has announced. However, the US economy runs a trade surplus in trade of services, totalling $293 billion in 2024. (Although the US trade deficit in goods is taken, at least in White House political circles, to be full proof of unfair trade barriers by other countries against US exported goods, the US trade surplus in goods, by contrast, has no implications at all as to whether the US is imposing unfair trade barriers in services with regard to US imported goods. Go figure.)

Moreover, payments across borders as a result of direct and portfolio investment also favor the US by several hundred billion dollars. Moreover, I should emphasize that a variety of other payments go into what is called the “current account balance,” the broadest measure that combines international payments related to trade in good and services, as well as foriegn investments, and also includes remittances that immigrants send to their home countries, payments made by foreign insurance companies, payments between governments, and other categories. For those who want the full account of the current account balance, a baseline starting point is “U.S. International Transactions, 4th Quarter and Year 2024.”

How much should Americans worry about the large and growing gap between US assets and US liabilities? Looking back about 20 years, the gap–that is, the “net foreign asset position”–was much smaller: back around 2005, the gap was about 15% of US GDP, while now it’s more than 90% of US GDP. Twenty years ago, the gap was much smaller, so that that when the net foreign asset position became somewhat larger and more negative in a given year, this change was fully offset by the higher returns being earned by US investors holding foreign assets. This was “exorbitant privilege.”

But now, thanks mostly to foreign ownership of US assets and the very strong rise in US stock markets, the net foreign asset position has become enormously more negative at $28 trillion. The rate of return earned by US investors with foreign assets continues to exceed that of foreign investors holding US assets, but that $28 trillion gap is so large that the additional payments received by US investors in a given year no longer cover the increasingly negative net foreign asset position. Thus, Andrew Atkeson, Jonathan Heathcote and Fabrizio Perri have a research paper forthcoming in the American Economic Review called “The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States.”

As Atkeson, Heathcote, and Perri point out, this fact may alter how you think about the large gains in US stock markets. If US stocks are primarily owned by US citizens, then gains in the US stock market redound to the benefit of Americans. But the rising foreign ownership of US stock markets suggests that gains in US stocks are increasing flowing to foreign investors, instead. International diversification of investments has both gains and tradeoffs.

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