Warren Buffett Issues Warning about U.S. Trade Deficit - and Offers a Solution

NEW YORK--(BUSINESS WIRE)--Oct. 27, 2003
In a FORTUNE exclusive, world-renowned investor Warren Buffett issues a stern warning about the U.S. trade deficit, saying "our trade deficit has greatly worsened, to the point that our country's 'net worth', so to speak, is now being transferred abroad at an alarming rate." It's a warning Buffett says he is backing with Berkshire Hathaway's money - by making investments in foreign currencies. In the story, appearing in the November 10 issue of FORTUNE on newsstands November 3 and at www.fortune.com, Buffett also offers a tariff solution he says will achieve trade balance.
According to Buffett, foreign ownership of American assets will grow at about $500 billion per year at the present trade-deficit level, which means that the deficit will be adding about one percentage point annually to foreigners' net ownership of our national wealth. "A perpetuation of this transfer will lead to major trouble," writes Buffett.
Buffett's solution is to issue Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would sell the ICs to parties--either exporters abroad or importers here--wanting to get goods into the US. 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, argues Buffett, is trade balance.
Excerpts:
-- "Through the spring of 2002, I had lived nearly 72 years
without purchasing a foreign currency. Since then Berkshire
has made significant investments in--and today holds--several
currencies . . . To hold other currencies is to believe that
the dollar will decline . . . I actually hope these
commitments prove to be a mistake."
-- "In effect, our country has been behaving like an
extraordinarily rich family that possesses an immense farm. In
order to consume 4% more than we produce--that's the trade
deficit--we have, day by day, been both selling pieces of the
farm and increasing the mortgage on what we still own."
-- "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."