This piece by Warren Buffett is a bit old, but a commenter here just drew it to my attention. Normally I wouldn't comment on something from so long ago. However, given that it was published before this blog existed (so I couldn't comment at the time), and noting that Buffett has been advising Barack Obama, I thought it was worth raising it now.
In a nutshell, Buffett argues for reducing the trade deficit through a trade balancing plan:
My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.
We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.
I have three criticisms here (others may have aditional ones they want to mention).
1. This a clear WTO violation. The measure is a bit more complex than many trade measure, but it seems to me that there would likely be a violation of GATT Article III, GATT Article XI and/or the TRIMs Agreement Annex. And, of course, there would be some serious nullification or impairment.
2. It is likely to result in a severe retaliatory response from our trading partners (Buffett is way off, in my view, when he says this will not "encourag[e] trade wars.")
3. It is bad economic policy. As Buffett himself notes: "There is no free lunch in the IC plan: It would have certain serious negative consequences for U.S. citizens. Prices of most imported products would increase, and so would the prices of certain competitive products manufactured domestically. The cost of the ICs, either in whole or in part, would therefore typically act as a tax on consumers."
