[sethev]

In Buffet's example foreign investment is caused by the trade deficit, not the other way around. The investments are made to protect the transfer of wealth that already took place. In other words, people in other countries are buying US assets with the money that we gave them. This isn't really comparable to selling equity in exchange for money that will be used to invest in future growth.

[tszyn]

That's true, in his example he makes a point of stressing that the foreign value is consumed rather than invested. But it's not clear that that's what happens in real life. For example, if China sends an excess of resources to "the US", and in return "the US" gives China shares or bonds issued by US companies, then the extra resources are presumably used by these companies in a productive way. (When a company acquires capital on the market, it is usually to invest it.)

BTW, it seems to me that foreign investment is always caused by a trade deficit, not the other way around. If the Rest of the World (RoW) wants to invest in the US, it has to acquire dollars. The only way RoW can acquire dollars is to sell more stuff to the US than it buys from the US. In other words, it has to be in trade surplus with the US. So the US has to be in trade deficit.