Matt was correct too (on capital imports)

In class the other day, we went over this question, whose answer I need to correct; Wolf's Chapter 12 (esp. pp. 259-261) made me revisit this. The short story is that Matt's answer was correct. The question was the following:

Dynamics of trade. If a country’s trade deficit increases, it is (importing/exporting) capital. An example of this would be the U.S., where increases in the trade deficit have been financed by the (import/export) of dollars (to/from) countries such as Japan and China. The U.S. trade deficit is in the (current account/capital account), while the U.S. has a surplus in the (current account/capital account).

The way I have viewed (and explained) this is the following: when the U.S. has a trade deficit, we are purchasing more goods from overseas than we are selling overseas: a current account deficit. Accordingly, to pay for those extra imports, we send dollars (and assets denominated in dollars, including bonds and other forms of capital) overseas, where they are accumulated in places like the Bank of China. This is, unambiguously, a capital account surplus. It means we are, on net, borrowing from China, etc., to pay for the things we buy from them.

However, it also is what Wolf and others call importing capital, or net capital inflows. China (for example) is accumulating American-produced capital assets in the same way that we are accumulating Chinese-produced goods. This is viewed as the U.S. importing capital from China. I find this terminology counterintuitive because it involves overseas actors holding American capital, but have verified (online and in other texts) that mainstream economists, like Wolf, use the terms in this way.

There are two ways we could make sure we answer the question above correctly that might make intuitive sense. Using this terminology (and Matt's correct answer), we would say:

Dynamics of trade. If a country’s trade deficit increases, it is importing capital. An example of this would be the U.S., where increases in the trade deficit have been financed by the import of capital from countries such as Japan and China. The U.S. trade deficit is in the current account, while the U.S. has a surplus in the capital account.

Alternatively, more intuitive to me of understanding this is:

Dynamics of trade. If a country’s trade deficit increases, it is exporting assets and borrowing from abroad. An example of this would be the U.S., where increases in the trade deficit have been financed by the export of dollar-denominated assets to countries such as Japan and China. The U.S. trade deficit is in the current account, while the U.S. has a surplus in the capital account.

On the other hand, Googling "export(ing) capital" will show you that there are leading scholars with more (ahem) sensible (!?) views of capital imports and capital exports that we can get our ideas from: ay ay ay...