STRATEGIC

Leveraging U.S. Strengths, Dealing with Vulnerabilities 77
American public are increasingly skeptical of globalization, 5 the United
States benefits from its openness to the global economy in a number of
ways. Trade brings expanded markets for U.S. goods, enabling firms
to reach greater economies of scale. Imports bring cheaper inputs
and cheaper goods. The United States has an advantage in services
trade, and the globalization of services expands high-skill and highcompensation
employment. Openness to investment brings in new
capital, as well as new management knowledge and ways of doing business.
Likewise, the ability to invest abroad allows U.S. companies to
better meet foreign market demand at lower cost, to localize output
more easily. Global use of the dollar has enabled the U.S. government
to borrow at lower costs than otherwise and to borrow in dollars, avoiding
the problem of exchange rate risk that besets many other countries.
The United States also benefits from its leadership of the global
financial institutions. Even as China attempts to build institutions to
challenge U.S. financial dominance, such as the Asian Infrastructure
Investment Bank (AIIB) or the New Development Bank, 6 it models
them after U.S.-built structures and keeps a significant portion of its
reserves in U.S. government debt instruments—more than $1.2 trillion
in March 2016. As one economist noted, from 2003 through
2007, foreigners poured $7.8 trillion of new foreign investment into
the United States—more than $5 billion a day—and “even after the
subprime crisis started to unfold, the money still kept ‘rolling in’ to
the United States, albeit at a slower pace.” 7 Capital continues to leave
China after its stock market turmoil of 2015–2016. Indeed, concern
over capital flight may limit Chinese leaders’ willingness to further
devalue its currency.
5 In an April 2016 survey of 2008 respondents, 49 percent, including 55 percent of Republican
voters, said U.S. involvement in the global economy is “a bad thing as it lowers wages
and costs jobs.” Only 44 percent saw it as “a good thing, because it provides the U.S. with
new markets and opportunities for growth.” Pew Research Center, 2016b, p. 19.
6 The AIIB is to be capitalized at $100 billion, with China contributing the single largest
share.
7 Mihir A. Desai, C. Fritz Foley, and Kristin Forbes, “Financial Constraints and Growth:
Multinational and Local Firm Responses to Currency Depreciations,” Review of Financial
Studies, Vol. 21, No. 6, November 2008.