Investing General Discussion

Of Trade and Capital: A Tale of Two Strategies | Commonplace

Beyond tariffs, capital flow tools play a crucial role in reshaping and strengthening the American economy for the future.

commonplace.org

The Economic Case for Capital Flow Tools

While tariffs address security concerns by urgently decoupling U.S. supply chains, capital flow tools directly target the economic distortions driving imbalances. The administration appears to be developing three primary tools:

1. The U.S. Sovereign Wealth Fund (SWF), which functions as a mechanism to create outward capital flows from the United States, reducing upward pressure on the dollar and making U.S. manufactured goods more competitive.
2. Reinstating the 30% foreign withholding tax on interest income, which existed until 1984. This policy would make U.S. financial assets less attractive to foreign investors, particularly central banks, reducing capital inflows that drive dollar strength and the trade deficit.
3. Potential capital controls using the International Emergency Economic Powers Act (IEEPA), which grants the president broad authority over international transactions in response to national security threats.

The administration isn’t just talking about rebalancing trade, it’s assembling the tools to actually do it.

Click to expand...

The SLR is a rule that requires big U.S. banks to keep an extra layer of loss-absorbing capital.

The U.S. banking industry is optimistic that regulators will soon move to change how much capital they set aside against typically safe investments, particularly after the turmoil in Treasury markets last month.

Click to expand...