U.S. companies generate profits both at home and through their foreign affiliates. Yet, across all U.S. corporate businesses captured in the National Income and Product Accounts—including public and private companies, with profits measured for tax rather than investor-reporting purposes—foreign earnings now account for just 11.6% of total profits, less than half their pre-pandemic share. That reduced exposure may offer some near-term insulation when Europe and other overseas economies are weak, but it also leaves U.S. profit growth less geographically diversified over the longer term. In this Economics Weekly, Richard de Chazal examines what has changed, why the foreign share of U.S. corporate profits has collapsed, and what that means for investors.
