Re-Balancing U.S. Trade and Capital Accounts

Manufacture This (Capozzola) - Rob Scott at the Economic Policy Institute reports that while the U.S. trade deficit collapsed in 2008 and early 2009, it started to grow again in the 2nd half of last year and is expected to reach 5-6% of GDP within a few years. Scott believes that preventing this type of deficit growth and closing the trade deficit are two of the most important steps that can be taken to rebuild U.S. manufacturing. In a report titled “Re-Balancing U.S. Trade and Capital Accounts,” Scott argues that Warren Buffett’s plan for eliminating the trade deficit could also address some of its underlying structural causes.

"Buffett proposed to give import certificates (ICs) to exporters in exchange for each dollar’s worth of goods produced domestically and sold abroad. Exporters could retain those certificates for their own use (to purchase imports), or sell them in a special commodity market for ICs. Surplus certificates would be sold at market value to firms wishing to sell goods in the United States, acting as a type of quota-license for all U.S. imports.

The ICs would sell at a premium of perhaps 10% to 20% over their face value, given that demand for imports exceeds that for exports by a substantial amount (as reflected in the trade deficit). The IC plan is, in effect, “a tariff by another name” according to Buffett, but one that would also benefit exporters.

Senators Byron Dorgan and Russell Feingold introduced legislation in 2006 to implement the Buffett plan (S. 3899). Their proposal would gradually phase in the Buffett plan, steadily eliminating the U.S. trade deficit."