| About a millennium ago during the reign of the Song dynasty, there was a major grievance brewing inside China’s halls of power. At the time, China regularly made tribute payments of silver to the steppe empires to its north. These were supposed to guarantee against their horsemen invading. Still, Chinese officials raged against the outflow of money to groups they referred to as barbarians. The irony however was that much of that silver likely returned to China. The steppe empires used those payments to buy Chinese goods. In effect, it was a kind of fiscal stimulus to domestic industry. Any of this sound familiar? President Donald Trump today blasts the European Union and other US trading partners for “ripping off” America. But that misses the bigger picture. Much of the US trade deficit has less to do with taking advantage of America than adding to its economic power. Almost all US imports are invoiced in dollars — 95% as of 2023. Some of those come back to pay for American goods and services. What’s not captured in trade data, though, is the dollars that come back into US assets. Canada, once one of America’s closest friends and allies but now a frequent Trump target, held $2.56 trillion of US securities at the latest count. That contributes capital to American firms, holds down borrowing costs and boosts the net worth of US households — the vast majority of which have financial assets. The Canadian holdings are equivalent to more than 40 times the 2024 US goods-trade deficit with its northern neighbor. It’s one of many illustrations of how what may appear to some as a waste of money actually accrues to American interest. But maybe not for much longer.  A tractor trailer enters the US at the border in Fort Erie, Ontario, on March 4. Photographer: Christopher Katsarov Luna/Bloomberg This week in the New Economy | The Trump administration is waging war against what it calls “waste, fraud and abuse” in federal spending. But even if this is taken at face value, the cost of such a battle can outweigh any benefits. Take the operations of soft-drink makers in Japan. Retailers there insist on receiving blemish-less cans and bottles from Coca-Cola Bottlers Japan — one of many illustrations of the Asian nation’s focus on quality. But that necessitates much costlier packaging than is the case for Coke products in other markets. Extra cushioning is needed to keep the cans pristine. Elsewhere, bottlers use less costly packaging and just write off waste from marred products. This is arguably an example of the lack of efficiency some economists say held Japan back for decades. Similarly, some share of the billions of dollars worth of “waste, fraud and abuse” that might (or might not) exist in the US federal government may be costlier for the American national interest to address than simply keeping on the previous course.  The Forbidden City shrouded in smog last year. The US embassy published air-quality data on Beijing as a form of soft power, but the Trump administration recently ended the practice. Source: Bloomberg Among the recent casualties of Trump’s scattershot efforts has been a program that provided global air quality data from sensors at more than 80 embassies and consulates. At first glance, and against a backdrop of outsize US fiscal deficits, paying for monitoring other countries’ pollution would arguably seem a waste. But wait. That program (like many run by the now decimated USAID) gave off an image of America as a nation dedicated to transparency and truth, one that functioned as a counterpoint inside authoritarian nations like China that tightly control information. It was data that was used by hundreds of thousands of people around the world, offering the US a daily dose of soft power. Suehyun Jung, a former South Korean diplomat who worked at her country’s embassy in Beijing, analyzed the impact of the program. Now a professor at Kongju National University, she said that “it was a policy that genuinely benefited the Chinese people — including foreign residents — while also enhancing the credibility and image of the United States.” No more. In Cold War I, American diplomats explicitly sought to build soft power, even in the design of US diplomatic installations. Confronting authoritarian or totalitarian regimes around the world, Washington built embassies and consulates that appeared open and transparent — telegraphing liberal democratic ideals.  Walter Gropius borrowed from the Greek Parthenon to create the US embassy in Athens. Source: Bloomberg “Democracy competed with communism in many different ways, including architecture and culture,” David B. Peterson, author of a book on US embassies in the Cold War, told Bloomberg in 2023. In the late 1950s, the Soviets favored “oversized, powerful buildings that portrayed a country of military might, not accessibility.” In the case of the US embassy in Dublin, the architect “made it circular as a message: America never turns its back on anybody,” Peterson said. Even as Trump sometimes appears to discard that message, it’s still history worth remembering in the drive to halt “rip-offs” and “waste.” —Chris Anstey Bloomberg Invest HK: New markets and new connections are powering Hong Kong's efforts to retain its role as a global financial center and economic gateway to China. From the so-called New Silk Road to Beijing's effort to strengthen the Greater Bay Area initiative, new investment opportunities are appearing in Hong Kong and across the Asia-Pacific region. Join us in Hong Kong on June 10-11 to hear more. | 
