Warren Buffett on US Trade Deficit, Tariff & Trade War in 2003

Warren Buffett had on 2003 issued an article on Fortune, expressing his worry that the U.S. was buying way more stuff from other countries than it was selling to them, essentially “Import > Export”, or economists call it a '“Trade Deficit”.

To summarise: 

Problem: Trade Deficit

1. Warren Buffett said Trade Deficit is like a very rich family (US) spending more than they earned by selling off bits of their valuable farm year after year. As a result of this, foreigners are owning an increasing amount of US assets (like stocks, bonds, and property).

2. He thinks the US is transferring the nation's wealth abroad, at an alarming rate (in 2003). This cant last forever and would eventually lead to major trouble for future generations of Americans.

Proposed Solution: Import Certificates

1. Buffett suggested a system using "Import Certificates" (ICs), with the following mechanism:

   1. U.S. companies that export products/services would receive ICs equal to the value of their exports; and

   2. Companies wanting to import goods into the U.S. would need to buy these ICs.

2. This system will automatically force imports and exports to balance out, making U.S. goods cheaper overseas and imported goods more expensive for American consumers.

3. Exporters typically won’t use the ICs themselves, so exporters will sell their ICs in an open market to importers that need the ICs, creating extra revenue stream for U.S. exporters that allow them to lower the actual price of their goods in foreign markets to be more competitive internationally.

4. Because the ICs are sold in an open market, the price of the ICs will fluctuate based on supply/demand. The plan doesn't target specific industries or countries. Market forces (the price of ICs) determine which imported goods are viable and competitive.

Example of How It Will Work Out: China Import into the US

Subscribe to Community Subscription to read the rest of the article!