I thought it would be a good time to highlight some expert opinion about the extreme importance of addressing the U.S. trade deficit. I mean, who cares what Randy has to say? Not many, believe me! But how about Warren Buffett, a man generally regarded as one of the world’s most successful investors, and a man genuinely concerned with America’s future?
In 2003, Warren Buffet wrote a piece for Fortune Magazine called “America’s Growing Trade Deficit Is Selling The Nation Out From Under Us. Here’s A Way To Fix The Problem – And We Need to Do It Now.” In this article, Buffett predicts all kinds of scary things for the future of our nation if we allow our enormous trade deficit to continue to expand (FYI, it has).
In the article, Buffett describes the U.S. trade deficit this way: “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.”
Better yet, I won’t summarize. Here is the actual article:
America’s Growing Trade Deficit Is Selling The Nation Out From Under Us. Here’s A Way To Fix The Problem–And We Need To Do It Now.
By Warren E. Buffett
November 10, 2003
(FORTUNE Magazine) – I’m about to deliver a warning regarding the U.S. trade deficit and also suggest a remedy for the problem. But first I need to mention two reasons you might want to be skeptical about what I say. To begin, my forecasting record with respect to macroeconomics is far from inspiring. For example, over the past two decades I was excessively fearful of inflation. More to the point at hand, I started way back in 1987 to publicly worry about our mounting trade deficits–and, as you know, we’ve not only survived but also thrived. So on the trade front, score at least one “wolf” for me. Nevertheless, I am crying wolf again and this time backing it with Berkshire Hathaway’s money. 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. I won’t give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.
Both as an American and as an investor, I actually hope these commitments prove to be a mistake. Any profits Berkshire might make from currency trading would pale against the losses the company and our shareholders, in other aspects of their lives, would incur from a plunging dollar.
But as head of Berkshire Hathaway, I am in charge of investing its money in ways that make sense. And my reason for finally putting my money where my mouth has been so long is that 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.
A perpetuation of this transfer will lead to major trouble. To understand why, take a wildly fanciful trip with me to two isolated, side-by-side islands of equal size, Squanderville and Thriftville. Land is the only capital asset on these islands, and their communities are primitive, needing only food and producing only food. Working eight hours a day, in fact, each inhabitant can produce enough food to sustain himself or herself. And for a long time that’s how things go along. On each island everybody works the prescribed eight hours a day, which means that each society is self-sufficient.
Eventually, though, the industrious citizens of Thriftville decide to do some serious saving and investing, and they start to work 16 hours a day. In this mode they continue to live off the food they produce in eight hours of work but begin exporting an equal amount to their one and only trading outlet, Squanderville.
To read the rest of this article (and I hope you will), click on this link: http://www.berkshirehathaway.com/letters/growing.pdf
Our trade deficit is a serious problem that we need to do something about soon. We can’t wait around for Washington to fix this problem because if they were going to take bold action to address this, they would have done something by now. However, every one of us can do our part to address this problem by buying American. Please consider taking the Buy American Challenge today.
Until next time, here’s to doing what we can to support our country by buying American.
Randy
Warren Buffett’s warning about the US trade defict is both timely and accurate with respect to its consequences which are now upon us. He correctly noted, as shown on his Surplus/Deficit chart, that until the mid-’70s that Squanderville’s (the USA’s) trade had been in balance. Had he extended the left side of the chart back to 1876 it would have shown that for 95 of those 100 years the US always had a positive trade balance. The 5 deficit years inj the early ’70s out of 100-were barely in the red and the largest trade surplus ijn US history was in 1975.
It suddenly went negative in 1976 when the US sold less abroad than it bought. He does not state what happened in 1976 that caused this about-face from a perpetual trade surplus to a perpetual trade deficit, but this is important to know: In 1976 Congress passed and on October 4 President Ford signed the Tax Reform Act of 1976 imposing such a drastic increase in the US income tax on US citizens living and working abroad that they could no longer survive.
With their world-wide income already taxed by the foreign country where they lived, worked and sold US products, hundreds of thousands of US citizens who always insured a US trade surplus could no longer survive. Studies showed that the average American abroad earning $50,000, because of this legislation (which was made retroactive to Jan.1) suddenly needed a salary of $250,000 in order to have the same standard of living he had before the tax increase, whereas the competitive salary level remained $50,000. Hundreds of thousands threw in the towel and came home. This destroyed our overseas sales force.
Foreigners from every other country in the world could sill survive on $50,000 because no other country in the whole world double taxes its citizens residing abroad.
The effect on the US trade balance was immediate and disastrous. The US trade deficit, which began in 1976, now totals some $7.7 trillion! The US merchandise trade deficit in 2010 was $640 billion.
No family can survive if it spends more than it takes in. No company can survive if it always loses money because it buys more than it sells. And this is just as true of the nation that consistently and perpetually imports more than it exports. But we cannot survive without imports. Our nation would shut down ijn a few days without imported petroleum. The solution, therefore, is not to quit importing bu to export much more. But our problem is that because of our tax laws our government has deliberately made it impossible to send our own citizens abroad, or for them to go on their own, to sell our exports.
It is not that we import too much but that we export far too little. We have to hire foregn mercenaries to sell our exports and that makes no more sense than appointing foreign citizens to man our US embassies abroad.
This is strictly a US problem created by own Congress. Few foreign customers there are that come banging on our doors begging to buy our products. Why should they when ALL of our trade competitor nations have feet on the ground in foreign markets selling their products? Germany last year had the largest trade surplus of any country – $205 billion. If you think it is because German products are cheap, you are wrong. German products have very high price tags. It is because instead of punishing its citizens with double taxation so they will stay home, they encourage them to go and sell, sell, sell. And they do it. Last year Germany exported 7.8 times as much per-capita to China as did the US and the Swiss did even better by exporting 9.3 tmes as much per-capita. The Swiss are doing so well in China that they are negotiating a free trade agreement with China.
The only way this is ever gong to be turned around is for the US to repeal this punishing double taxation of our citizens abroad. The Simpson-Bowles commission on Fiscal Responsiblitiy recommended in December that the US level the playing field it has tipped against ourselves by abandoning this world-wide citizenship based taxation and adopting territorial taxation just like every other nation on the face of the earth. Nobody in Washington is even considering this, but mark my word unless this is done what Warren Buffet forsaw in 2003 with respect to the demise of the US is as certain as the rising of the sun in the morning. The apocalypse is upon us.
Roger,
This site is not advocating or talking about stopping trade altogether as you discuss. Clearly, we would be in trouble without fuel for example. We are talking about achieving a balance of trade foreighn nations so we are not hemorrhaging wealth and jobs, as we are today. We can’t count on others (Congress, corporations, etc.) to solve this problem. We have to do it ourselves.
Randy
This is a correction to the numbers in my prior post. It should read as follows:
Studies showed that the average American abroad earning $50,000, because of this legislation (which was made retroactive to Jan.1) suddenly needed a salary of from $140,000 to $250,000 (depending on the country of residence) in order to have the same standard of living he had before the tax increase, whereas the competitive salary level remained $50,000.
The TAX REFORM ACT OF 1976 was the killer of our thriving export trade. Senator Grassey, Iowa, was the committee chairman that pulled the plug on Americans living and working abroad. Congress’ understanding of what it takes to do business in the off-shore markets is abysmal.
They are the bottle-neck to correcting the tax structure that would allow our sales people to do their job again.
ROGER CONKLIN AND MARK CARSWELL AND I THINK ALMOST THE SAME THOUGHTS AND I SUSPECT EVERY BUSINESSMAN IN THE COUNTRY WHO HAS EXPORT AND TAX KNOWLEDGE, ARE RIGHT WITH US.
ALL THE FACTS AND FIGURES AND MR. OBAMA ORDERING US TO CONCENTRATE ON EXPORTS WON’T HELP. WE NEED NEW TAX POLICY. GOVERNMENT CANNOT HELP, BUT THEY SURE CAN HURT. WE NEED SEVERAL STEPS TO RIGHT THE NATION, ECONOMICALLY.
1. SCRAP ALL CURRENT FEDERAL TAXES.
2. REPEAL THE 16NTH AMENDMENT TO THE CONSTITUTION THAT PERMITTED A TAX ON INCOME. (TAKEN FROM THE COMMUNIST MANIFESTO AND MARXIST POLICY)
3. PASS THE REVENUE NEUTRAL FAIRTAX BILL NOW PENDING IN COMMITTEE, IN BOTH HOUSES.
4. PASS A BALANCED BUDGET AMENDMENT TO THE CONSTITUTION.
5. GET RID ON MOST OF THE FEDERL SPENDING AND OVER HALF THE DEPARTMENTS.
CURRENT TAX CODES MAKES MOST OF US EITHER VOLUNTARY OR INVOLUNTARY CRIMINALS. THE FAIRTAX WOULD DECRIMINALIZE ALL OF US.
OUR POLITICIANS WANT TO KEEP THE MARXIST INCOME TAX CODE SO THEY CAN EXTORT CAMPAIGN CONTRIBUTIONS AFTER THEY SLIP INTO THE CODE, SPECIAL PROVISIONS FOR THOSE WHO WILL KICK BACK SOME OF THE MONEY THEY RECEIVE AS “CAMPAIGN CONTRIBUTIONS”. OUR CURRENT CROP OF POLITICIANS, INCLUDING THE TEA PARTY MEMBERS WHO WANT TO BE RE ELECTED, USE THE LAW TO START CAMPAIGNING FOR RE ELECTION THE NEXT DAY AFTER THEY ARE SWORN INTO OFFICE.
THE FAIRTAX WOULD RETURN THE GOVERNMENT TO THE PEOPLE AND SAVE THE NATION THAT ABOUT 35% OF US LOVE AND 65% EXPLOIT, FOR THEIR OWN SELFISH REASONS.
THEY ALL HAVE A HANDLE ON THE PROBLEM, BUT MR OBAMA NOR MR BUFFET HAVE A CLUE ABOUT THE SOLUTION OR IF THEY KNOW THE SOLUTION, AFTER READING ME, MR CONKLIN OR MR CARSWELL, DO NOT HAVE THE WILL OR INCLINATION TO FIX IT, WITH THE SOLUTION RIGHT IN FRONT OF THEM AND RANDYS IDEA OF ”JUST BUY AMERICAN”, IS AN UNTHINKING GRAMMAR SCHOOL SOLUTION, THAT WOULD STOP WORLD TRADE AND ANOTHER GREAT DEPRESSION.
Several things:
First, Warren Buffet is a very intelligent man and a genius investor. But he is not an economist, and is hardly a disinterested third party. Primarily, he is a businessman, one who holds interests in many US corporations that are having trouble competing with foreign manufacturers. His Import Certificate tariff scheme is interesting. But such a sweeping change to the US economy would have unpredictable results. It would be hard to tell specifically who would benefit and who would pay. One person, however, would almost certainly benefit. That person is Warren Buffet.
Second, his Squandervill/Thriftville analogy is very misleading. For the analogy to illustrate his point, he has the people of Squanderville cease all productive activities once food imports from Thriftville satisfy demand. This is extraordinarily unrealistic. Significant historic evidence shows that when agricultural output meets demand in a given population with less than full labor input, that excess labor begins to specialize in the creation of capital goods. (Read anything by Jared Diamond for further elaboration.) This is the very foundation of wealth as we know it. When Thriftville doubles its food output with the same labor pool and exports to Squanderville, the labor pool in Squanderville is now free to use their labor to create other goods. Thriftviile food imports are not the end of a stable economy, it is the beginning of a modern economy.
Third, Mr. Buffet gets trade deficit, private debt, public debt, monetary supply, and asset holdings all hopelessly muddled. Consider the following example: Company 1 in Country A exports 1 widget X valued at $1 each (in Country A’s currency) and imports 2 widget Y’s valued at $1 each from company 2 in Country B. Let’s look at the effects:
Country A’s trade deficit goes up, because its producers have exported more than it has imported. Country A’s monetary supply goes down, because $1 of their money is taken out of domestic circulation. However, Country A’s public debt does not change, because the government did not directly purchase the goods, nor did it increase spending based on the import, nor did it issue another $1 (or another $1 in bonds) to replace the $1 (temporarily) taken out of circulation. Ceteris paribus, increasing the trade deficit does not increase public debt.
Company 1’s liquid assets go down in the short term, because it spent $1 more than it sold. However, it’s total assets do not. Assuming company 1 had a productive reason for purchasing the 2 widget Y’s, their ownership of those two assets will net them more than the $2 spent on purchasing them. That is, rational actors tend only to exchange the products of their labor for things more valuable to them than those products. In purchasing the 2 widget Y’s, Company 1 will put them to a use which will make more money than they cost. Therefore, increasing the trade deficit does not necessitate an increase in private debt.
Now, suppose that the owner of company 1 decides to finance his purchase of the widget Y’s by selling stock in his corporation. So in exchange for the 2 widget Y’s, company 1 gives company 2 1 widget X and $1 worth of stock in company 1. Now company 1 has the 2 widget Y’s AND the $1 in liquid assets saved from not using it to buy the widget Y’s. Yes, a percentage of company 1’s profits now go to company 2. But company 1 now has the increased productive capacity of greater physical and liquid assets. So long as the long term growth effected by using those assets outpaces the percentage owed to company 2, company 1 is better off. Thus, the selling of assets to finance a trade deficit does not necessitate a net loss of capital.
If you think about it, Country A is, on the whole, made better off by this increase in their trade deficit. Country B has, in effect, given Country A 2 equally valued widgets for 1 in exchange for a promise to buy at least $1 of goods from Country A in the future.
What makes Mr. Buffet’s analysis so obtuse is that he equates deficit with debt. I can see how people can fall for this line of reasoning-it seems intuitive. People can’t spend more than the make, or else they go bankrupt. But the analogy simply doesn’t translate. A nation doesn’t necessarily loose money or assets when it runs a trade deficit because a nation’s capital stock and money supply can grow. (So can a person’s, but the examples are harder to visualize.) It is quite possible to run a monetary trade deficit yet not lose (and actually gain) net worth because economies create value. When you restrict trade, you actually limit access to those things that allow this creation of value. (more specialized labor pools, broader consumer base, higher efficiency resource acquisition, ect.)
Third, I’m baffled by Mr. Buffet’s implicit assertion that foreign purchasers of American assets are bad. (for anyone other than people like Mr. Buffet) When an American company sells its stock on the open market and people buy it, we call it “investment” and tend to see it as a good thing. The higher the price for that corporation, the better. When foreigners (in addition to Americans) bid on assets, the addition of their purchasing power to the buyer pool drives prices up. This can be a very bad thing for professional investors like Mr. Buffet, who now have to compete with these new bidders. But it is a good thing for everyone else. (Stockholders see their net worth rise, corporate officers have more liquidity to play with, employees in turn are more secure in their compensation schemes, the corporation might even hire more people for an expansion.) Whether or not the purchasers are foreign should make no difference. Their money is as good as anyone else’s. Anything that broadens the market base is a good thing.
Fourth, his tariff scheme is…disturbing. First, such a complex and politically charged system would be ripe for corruption and manipulation. Second, as he acknowledges but dismisses without reason, it would raise prices and drop purchasing power. Third, he strategically mentions Smoot-Hawley without going into why the relative levels of surplus/deficit make his tariff so unlike that notoriously destructive law. The major damage with Smoot-Hawley was that it destroyed the profit margins of many foreign producers by limiting their access to US markets. Those failures started a chain reaction that came back to bite us. Just because we now run a deficit rather than a surplus doesn’t mean foreign firm’s profit margins are any higher, or any less dependent on access to US markets.
In conclusion, this article by Mr. Buffet is facile. His assertions carry little weight. They only include enough truth to facilitate plausibility. His analogies obfuscate rather than clarify. There probably are good papers with legitimate arguments that better support your “buy American” cause. This is not among them.
Caleb,
Okay, you’re not convinced when the world’s best investor says the trade deficit is a HUGE problem. Fine. here are numerous prominent economists cited in major papers this year saying how our trade deficit is killing job creation. I hate to tell you this… the trade deficit is killing jobs. That is a fact.
Randy
Source: Washington Post
Title: “Rising imports offset U.S. sales abroad”
Date: July 14, 2010
By: Howard Schneider
Excerpts: “The widening trade gap is putting downward pressure on U.S. [gross domestic product] when it is most vulnerable,” PNC Bank chief economist Stuart Hoffman wrote in a research note. “Less domestic production, because of increased imports and less demand for higher-priced U.S. exports, means less job creation in the manufacturing sector, a higher unemployment rate, and less income growth domestically.”
The trade deficit “is a net detractor for jobs so it does make it harder to restore full employment,” said C. Fred Bergsten, head of the Peterson Institute for International Economics. “It is heading back up (the trade deficit) and no one knows at what point it might hit a crisis level.”
Source: Washington Times
Title: U.S. trade deficit goes up by 5 percent
Date: July 13, 2010
By: Patrice Hill
“Imports are rising much faster than exports, and the overall trade deficit will increase even more sharply when oil prices rebound, threatening the economic recovery,” said Peter Morici, business professor at the University of Maryland.
“President Obama has cautioned Americans about the dangers of another boom financed by excessive borrowing. But unless the administration implements policies that reverse the huge trade deficits on oil and with China, the nation risks economic stagnation,” he said.
Source: Atlanta Journal Constitution
Title: “Closing the import-export gap; U.S. trade deficit hits nearly $50 billion.; Experts say figure has negative effect on struggling economy.”
Date: August 15, 2010
By: Michael E. Kanell
Excerpt: From the perspective of U.S. manufacturing, it got worse in two ways: Exports fell 1.6 percent and imports jumped 4.75 percent, an increase that economist Paul Kasriel of Northern Trust called “whopping.”
Some economists saw the import number as a sign of healthier spending by Americans, but they acknowledge it means slower growth.
Economist Peter Morici of the University of Maryland said it’s worse than that — the yawning gap between exports and imports is corrosive for the struggling economy.
The billions of dollars sent overseas to pay for imports do not return to support American jobs, he said.
‘A rising trade deficit slows growth and increases unemployment.’
Source: The Christian Science Monitor
Title: “Trade deficit rises faster than expected: How worrying is that?; The US imported $49.9 billion more in goods and services than its exported in June, up from $42 billion in May. Such a large trade deficit is unsustainable and a drag on the economy, experts say.”
Date: August 11, 2010
By: Mark Trumbull Staff
Excerpt: “Oil and consumer goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unemployment around 10 percent indefinitely,” University of Maryland economist Peter Morici says in a written analysis.
I rebutted these quotes in the other thread. I’m just going to point out here that you didn’t actually respond to my arguments. You posted a bunch of quotes from economists who CONCLUDE that the trade deficit harms the economy. I’m not interested in conclusions, I’m interested in reasoned arguments. The fact that “economists” are the ones writing the conclusions carries no weight. Their conclusions are only as valid as their supporting arguments. Asserting otherwise is logically flawed.
Caleb,
Buffet’s suggestion for an Import Tariff scheme is very similar to what Brazil implemented back in the 1980s. Its economy was in serious difficulties as a result of its nearly total dependence on imported petroleum and it had imposed draconian restrictions on imports to severely limit the outflow of dollars in oder to be able to pay for the petroleum imports needed to prevent the whole economy from shutting down. All imports requred an import license and licenses were only issued for essential products for which there were no Brazilian-made products that would satisfy the product requirement.
In order to increase the inflow of dollars manufacturers were required to seriously exploit the export market and in order to obtain import licenses for the components not available locally which were essential to their own products they were required to substantiate export sales that had generated an inflow of dollars sufficient to pay for what they needed to import. The importation of foreign consumer products was totally prohibited.
Brazil had implemented a Buy Brazilian policy that totally shut the door to all but the most essential imported products.
There were some positive effects in that Brazilian companies that had never exported before becaame very serious about exporting and some of them became very successful at it. But having closed its doors to imports, including the paying of royalties for imported technology set the Brazilian economy way behind the rest of the world so things went from bad to worse. Without competition from foreign products local suppliers were able to raise prices on the local market and the country found itself in a horrendous infationary spiral that quickly became unberable. Consumer prices were skyrocketing. Workers were paid every two weeks and on payday they rushed to the supermarkets early in the morning to buy everything they needed because they knew prices would go up and everything would be more expensive that very afternoon. Prices were rising twice a day.
Massive restructuring of the economy followed with the scrappping of import restrictions, the elimination of import licenses and a gradual but accelerated loosening of regulations. Today Brazil’s economy, along with that of Chile, are the most dynamic of all of the countries of South America. Unemployment is way down, millions of its citizens have moved out of poverty into the middle class, the Brazilian currency, which during the worst of times was being devaluated with respect to the dollar at 80% per month has over the past couple of years strengthened with respect to the US dollar. Brazailian tourists, flushed with the results of this new-found prosperity are flooding Miami and the major cities of Europe and Brazil’s trade balance for 2010, which always used to be in a chronic deficit, recorded a $20.9 billion trade surplus. The net flow of Brazilians immigrating to the US has been reversed with more going back home to live than are arriving in the US, taking their savings back with them to buy properties and set up businesses. Brazilians are buying vacation apartments in Miami in significant numbers.
And since, unlike the US, Brazil does not subject its citizens who go abroad to Brazilian income tax, Brazilian entrepreneurs who set up small busineees abroad to sell exports, fully supported by the Brazilian foreign trade officials, have contributed substantially to Brazil’s positive trade balance. This is something US citizens are unable to do abroad because, under US tax laws they must, in addition to implementing an accounting system in accordance with the laws of the host country, they must also, under the Controlled Foreign Corporation provisions of the US tax code set up and maintain two accounting systems in US dollars, with the foreign currency values converted daily as exchange rates oscillate. This is an absolute nighmare. One is in accordance with US GAAP rules and the other is required to determine their US tax liability. This accounting overhead makes it impossible for a US citizen do do abroad what citizens of other countries can do easily in the US. And US citizens who set up busineess abroad must pay taxes to both the country where the business is located as well as to the IRS. There are stiff IRS penalties for Americans who set up businesses abroad but fail to follow to the letter these US tax laws.
Good points. I didn’t go into our current destructive tax structure since you covered it quite well. Boosting US export sales by changing tax and accounting requirements is both possible and desirable.
The difference between Buffet’s tariff and the Brazilian tariff is not necessarily internal structure. The difference between these two is the effects of restricting access to these respective markets. Brazilian consumers in the 1980’s had relatively little purchasing power; the Brazilian import market was a small percentage of any one manufacturer’s sales. The US consumer base, on the other hand, is the lifeblood of many international corporations and foreign manufacturers. Even a minor restriction to this market can send shock waves worldwide. Enough firms could fail that it triggers loan defaults, bank failures, even retributive tariffs. This is the last thing we need. When we are talking about the costs of imposing a tariff, we have to consider second and third degree effects.
We are too soon old and too late smart. Congress has the ability of a two year old and the power of an olympic wrestler. They make laws to punish success, because most of them are not successful, except at the public trough and Mr Buffet has been to the trough also. His companies are so intertwined the his GEICO can run commercials every ten seconds nationwide and the money can come from any Berkshire Hathaway Co. but all Mr. Buffet has to do to account for the money is issue more stock in another company and put that stock in as a company asset. He get Government subsidies in one company and uses that subsidy to increase sales in another and the American taxpayer never knows how those cut little commercials, with the gecko were paid for as long as it appears he can save money on his insurance. Our trade deficit doesn’t increase public debt as he implies, it is his getting government (read taxpayer) dollars that increases debt and makes the rest of us poorer.
This is slightly off the subject, but perhaps someone could explain why all the old rich families, who got rich as capitalists, are now Socialists, who have hidden their wealth in foundations and off shore accounts, with factories in low tax countries, but want us to redistribute our wealth to the unmotivated, less successful, hedonistic population? Go figure, perhaps I am talking about Mr. Buffet, but maybe I see this in all the old rich Socialists.
Hey, I blog about this movement too. I am more focused on the demand side and I feel that a major way to solve the crisis is by having an energy plan that weens us off foreign oil and keeps tax dollars in the United States so that tax revenue stays in this country to help maintain infrastructure and that we should still buy from companies that have maintained a Made in the USA line. Also eat food Made in the USA. It is better for you.
We absolutely need to keep our tax dollars in the U.S., dollars from all sources for that matter, not just tax dollars. And without question, foreign oil is a major problem. I believe we have a net surplus in food, but that doesn’t really matter, we should buy more domestic food if we can too. One thing is I don’t advocate for public policy one way or the other. I will not wait around for governmet to fix our problems. We can wait around for government to ween us off our oil dependence, or we can do it ourselves right now by organizing and communicating. Fuel efficiency means smaller trade deficit, it means jobs, it means a secure economic future. I’m done waiting for government to solve our problems. In my opinion, we need to do it ourselves.
Jonas
I trust you are not eating bananas or drinking either coffee or tea, since the probablity that they were grown in the US is zero. Also be careful about using gasoline to fuel your automobile since the probability that the petroleum from which it was refined was imported is about 75%.
Seriously, we cannot survive without certain exports. But likewise we, as a nation, cannot pay for them unless we remove these barriers, created not by foreign governments against US products, but by our own congress, that fiscally punish our own citizens so they will stay home and not go abroad to sell them to create American jobs and raise export revenue to pay for the absolute necessities we must import in order to survive.
The GAO and the President’s Export Concil back in 1978, 1979 and 1981 clearly warned both Congress and the Carter Administration of the abyss we were heading for by destroying the ability of US citizens so sell the exports upon which the economic viability of this nation depends. But neither, nor has any Congress or Administration since done anything to heed this warning.
This crisis is now upon us and it is most distressing to see that there is absolutely no consciousness in Washington on how our own Government has painted us into this corner from which there is no other way out. Nobody seems to even care as the hole gets even deeper.
Nobody said not to eat bananas, or use gas, or drink tea. Please do not mischaracterize the Buy American Challenge. A person can make an effort to buy American more often without taking it to a rediculous extreme. Comments like these just confuse people. Please read the Buy American Challenge guidelines: https://buyamericanchallenge.wordpress.com/challenge-guidelines/
If you have criticuism, let it be of this program and not one that you presume we are advocating.
Thnaks,
Randy
Those who advocate, “Buy American”, are not readers of history, hate them darn foreigners, and look for the simple surface solutions.
They should go back a really read Roger Conklin’s blog and really take a deep breath and ten maybe they will change their minds and become citizens of the USA and advocate for free trade.
Many things we buy over seas only come from over seas.
Our domestic tax policy is the only problem and all attempts to correct it have not been serious, except to try and fool us into misunderstanding the problem.
Enact the FairTax and watch the poor become Middle Classed and everybody prosper, except the politicians who have their hands in your pocket.
I advocate buying American because it is the only solution that American people can participate it. Look at your frustration over the tax issue you are discussing. You must rely on Congress to address that. I wish you luck, but I’m not putting my eggs in that basket anymore. I have control over my purchasing, and when I buy American, I know I am helping to fix the problem of jobs and the trade deficit, not make it worse. Before you criticize, why don’t you take a look at what I am actually advocating. I’m not saying anybody we should stop buying all imports. That’s practically impossible even if you wanted to. I’m advocating buying American to get us back to a net balance of trade. Our economy is out of balance, and we can get it back to a sustainable level by buying American more often.
This blog does not discuss trade policy. This blog is a discussioin of the importance of regular Americans buying American. Trade debates are pointless because everybody is already entrenched in their positions, and there is nothing invididual Americans can do about it anyway. Americans can make choices about the things they buy though. Please don’t assume this blog is about pushing for trade rescrictions, because it isn’t. Individuals buying American is an alternative to trade resrictions, not part of a campaign for them.
Randy,
I am also a very strong “buy Amercan” advocate. But as long as we must import certain products and materials to survive, we all have to become advocates that customers in other countries “buy Amercian” as well. We have to export in order to pay for the imports that we require to survive. Here is where we diverge in our views because there is no way that we are going to solve our trade deficit problem just by buying American. We have absolutely got to sell our products abroad.
I understand that it is not easy to solve this problem but people like both of us have got to work tirelessly to and effectively to persuade our government to remove the barriers that prevent US producers from selling their products abroad. This week’s Time Magazine (March 7 issue) includes an excellent article “How Germany Became the China of Europe.” It is a country with high wage levels just like the US, but unlike the US its exports are booming. Last year Germany had a $204 billion trade surplus in spite of the very high price on German products and the fact that the Euro has increased in value by 45% with respect to the dollar. Germany has the lowest unemployment rate in the past 18 years since East and West were united, and it is having to recruit foreign workers to move to Germany in order to satisfy its labor needs. It is not by accident that high labor cost Germany in 2010 had a larger trade surplus than China. And they did it even though their prices are not only higher than those of Chinese producers, but higher than the prices of American producers as well.
Why is Germany enjoying such prosperity whereas the US is in the worst shape since the depression of the 1930s? It boils down to one very simple fact: Germans go abroad and successfully sell German products. Its Government encourages them to do so. The US does exactly the opposite. By double taxing the income of US citizens who go abroad (and who have to pay taxes to the foreign country where they live and work) this makes it impossible for Americans to do like the Germans do and sell our products abroad. Germans living and working in the US are taxed only by the IRS, but Americans living and working in Germany are not only taxed by Germany, but they continue to be double taxed by the IRS. The US is the ONLY country in the world that deliberately kills its exports by making it virtually impossible through the double taxation for Americans to go abroad to sell American products.
You have quoted the following in your post: less demand for higher-priced U.S. exports, means less job creation in the manufacturing sector, a higher unemployment rate, and less income growth domestically.
The trade deficit “is a net detractor for jobs so it does make it harder to restore full employment,” said C. Fred Bergsten, head of the Peterson Institute for International Economics.”
Professor Bergsten writes of “less demand for higher priced US exports” as a cause for less job creation. What he totally misses is that the foreign demand for “higher priced US exports” is not something that just exists or does not exist, it is a demand that has to be created. How do you suppose the Germans are able to sell their even higher priced exports? It happens because they get out there and beat the bushes to sell them. They do not simply stay home and fold their hands and complain when foreign customers do not come on hands and knees begging to buy German products. They know they have to be sold. It is no different here at home. Successuful business here are successful because the sell, not because they have the cheapest product in the market.
The only solution to this is to pressure the decision makers to remove the fiscal ball and chain our Congress has attached to US citizens in the form of double taxation precisely to prevent our own citizens from going abroad and selling our exports. There is no other way of solving this problem other than hammering our legislators and making them realize that it is this rediculoulous tax policy that has killed the goose that lays the golden egg. One of the chief archetects of the current policy is Senator Chuck Grassley, who until recently was the chairman of the Senate Finance Committee. He firmly believes, and has said so many times, that having US citizens living abroad serves no useful purpose in selling US exports. When he was a freshman Congressman back in 1976 he was one of the co-sponsors of the Tax Reform Act of that year that literally transformed the perpetual job-creating US trade surplus for most of the prior 100 years into what is today a job-destroying trade deficit. In his position of leadership in the Senate he had never missed an opportunity to increase the taxation on US citizens living and working abroad. For what reason? It certainly is not to generate more tax revenue but instead because he considers any American who would live and work outside of the US to be a traitor. But Grassley is totally wrong. He, probably more than any single individual, is responsible for the massive US trade deficit and the unemployment it has created.
Yet he wins every election hands down because he brings home the bacon in the form of massive agricultural subsidies to his home state of Iowa. That is why the Iowa electorate returns him to Washington in every election.
So as a fellow supporter of Buy American I urge you to take up the cause of removing the barriers erected by our own Congress that prevents Americans from selling our products abroad and making customers in foreign countries Buy American as well.
You will notice that the Germans do not practice the blame game by pointing at China and castigating the Chinese for their currency policies like the current Administration and many of those in our Congress do. The Germans, with their even higher-priced products than ours go to China and sell them. Proof of this is that last year Germany, on a per-capita basis, exported 7.8 times more to China as the US. The proof of the pudding comes in the eating.
Roger,
I do not propose that government solutions have no role to play. They probably do. I just do not discuss it here on this blog because it would only serve to convulute an issue that is very simple. If we buy American, we create jobs. I don’t know a lot about the tax issue you are talking about. Perhaps it could have a major impact on the trade deficit. Actually, please do provide some links to stories or reports that discuss this. It’s just that anytime you advocate a certain policy change, you are likely to invite legitimate criticism on the other side of that policy debate. But buying American is not a policy debate. It’s an individual’s personal choice and freedom to choose what they buy. I stick to this issue solely on this blog becuase I do not think that with all the prominent economists, investors, business owners, and elected leaders who say buying American reducues the trade deficit and creates jobs, that a stong case can be made that we would not be better off as a country if we collectively bought American more often. That is my piece in this whole mess – to remind folks that we need to buy American whenever possibleand we’ll be better off for it. Our purchases do matter. Just buying the cheapest thing available and sending all our money overseas time after time does have a real impact on our country. I wish you luck in your endeavor. I just want you to know why I don’t take a stance on your issue. I will not take a stance on any policy issue with regard to this Buy American Challenge because the divisiveness it could cause could hurt my effort to promote buying American. Clearly, policy change could have a major impact on reducing the trade deficit and creating jobs, I just choose not to discuss those things here.
Randy
Randy
Any time world trade takes place we are all better off. The only way poor countries raise their standard of living is to sell the only thing they have lots of–TIME- oh we may not recognize it as time, but they sell their time to make things cheaply and we then can afford them.
The time sellers need to increase their efficiency so they buy capital equipment from those smarter and more advanced than
they are. Both are then better off than if neither had done their thing.
Sure we want to sell products at home and abroad and the other countries want the same and a side effect of this,”world trade” is both prosperity and peace. You’d never want to destroy a good trading partner for any reason. Buy American and German and Japanese, and Chinese, and Swiss, and Colombian and on and on, but mostly stop this insane political idea that someone else and your citizens living abroad, should be taxed out of a living.
Pass the FairTax on all new domestic goods sold in this country, not on exports and let our business people live where ever they want without penalty of double taxation.
Dump the 16nth amendment to our constitution, close down the IRS, and void the Marxist income tax. Promote capitalism, not central planning, or forced buying of goods just because a neighbors hands made them.
Nobody is forcing anything. I have nothing against those foreigners who make things that Americans consume, and I have nothing against the Americans that consume them. I have no villains at all. I simply recognise that our economy is out of balance. We can’t import $500 billion more than we export in ayear. It is not sustainable. I choose to buy American becuase I will not contribute to this problem any more than I have to. All this blog does is educate people about the importance of doing the same and the impact it can have on jobs. I want trade to thrive. But we desperately need balance in our economy. We can each do our part to achieve that by buying more American-made things.
After reading all the posts, the message I get is you all want, BALANCED TRADE, Yeah thats the ticket. How do we get balanced trade? make the playing field level. I don’t mean tariffs or restrictions. What I means is get the frickin governments out of it.
On our part, we need to dump the IRS, change the constitution back to prohibit income based taxes. Dump double taxation of the sales, service and engineering people living abroad, pass the Fairtax on all goods sold new inside the USA and stop this insanity of double taxation of our people living abroad.
ATTENTION POLITICIANS- are you afraid prosperity will put you out of a job. get a pair—-Pass the FairTax now.
I’m not seeking government solutions, becuase I don’t believe government has any solutions for us. Even if they could enact them, they are too busy fighting with eachother to give the American people the help we need. I agree, let’s get government out of it by solving the trade deficit problem by spending our dollars more wisely and keeping more dollars circulating here and creating jobs here. Let’s solve the problem with a non-governmental sloution.
Ramdy,
You are mis reading all our blog’s if you think we are advocating any solution to our imbalance of trade, be done by the government,
We simply want the government to tear down the barriers they have erected over time starting with Kennedy and built on to by a Socialist congress. Each president except maybe Reagan added to the barricade . We had a start, to tear down the barrier, when the Tea Party got a few seats in the current congress.
This monster tax code is our enemy. Most of us who file a return (50% of those who have taxable income simply do not file a tax return) are out of compliance.
We need to stop double taxation of those who want to go abroad to sell our products and the way to get the tax income to run things has to be more fair and also be almost unavoidable.
How does this reform tie in:
1. Pass the FairTax
2. Watch exports rise.
3. Watch buying power, of the despised middle class, go up.
4. Watch the politicians who depended on tinkering with the tax code to get campaign contributions, gone.
5 Jobs go up as capital is repatriated.(almost 14 trillion is parked overseas waiting for a friendly tax atmosphere and it will stay overseas if we don’t pass a FairTax like the one pending that never gets a fair hearing)
6. The buy American group goes away, because we sell more than we buy abroad, then everyone can see the benefits.
Randy, You are starting at the wrong place to solve the problem. I’d liken it to rubbing your knee when you have a headache. There is nothing wrong with knee rubbing, but it won’t help the headache. Attack the cause, wrong headed tax policy.
Randy,
On Feb 27 you said we were not discussing “world trade”, but you cannot advocate “buy American” without discussing world trade. If our trade was in balance, you wouldn’t be concerned.
If our trade policy was coherent we wouldn’t be concerned.
If our tax policy was not insane we wouldn’t be concerned.
If our political leaders were trying to correct the tax system we wouldn’t be concerned
If we could have sales and service people live abroad we wouldn’t be concerned.
If the ways and means committee would give the FairTax bill a hearing we wouldn’t be concerned.
If our country was not heading in the Socialist direction we wouldn’t be concerned. (look at who is the president and who his advisors are)
We should all be very concerned, but only a few of us are according to the polls.
U.S. Federal Leadership’s Unresponsiveness to Combating China’s Innovative Beggar-Thy-Neighbor Strategy over the Last 10 Years!
The Chinese Government gets result by managing its economy; therefore received the highest governmental trust ranking of 88% in the 2011 Edelman Trust Barometer®. The U.S. Government may not even deserve the 40% rating because it has done little if nothing to combat China’s innovative beggar-thy-neighbor strategy.
Four deficits gave birth to the book and movie I.O.U.S.A, namely, the leadership, trade, savings and the fiscal deficits. Following the releases of the I.O.U.S.A. book/movie, the better financed special interest groups caused the fiscal commission to become a reality, leaving the remaining three deficits, most relevant to the middle-class, to fall by the wayside. These 3 middle-class-relevant deficits, namely the leadership, trade and savings deficits are most causal to our current economic plight, while the fiscal deficit is primarily the result (effect) of the first three. I.O.U.S.A. treatment of the trade deficit was framed in the context of Warren Buffett’s parable Squanderville versus Thriftville. The portion of my post, titled, An America Lost in Squanderville deals with the trade deficit:
The United States’ trade gap is the proverbial “leak-in the-dike” with its de-simulative effect on our recovery. In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Media coverage that China has kept it currency undervalued is a gross understatement, it has actually been keeping the U.S. dollar over-valued; which adversely affects all U.S. trade with ALL U.S. trading partners, not just trade with China. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
The Leadership deficit can be best addressed with campaign financing reform that really works. The savings deficit can be best addressed with increased productivity, similar to Japan post-WWII economic miracle pioneered by W. Edwards Deming, an American statistician and replacing federal employment and most federal income taxes with a federal consumption tax, like those used by most industrialized countries, except the United States.
An Inflation-Neutral Balanced Trade System (BTS), inspired by Warren Buffett’s 2003 Import Certificate Plan is introduced at the top of page 4 of the Pdf, which is available at:
Click to access 2010Sept15_Campbell_Submission.pdf
All the posts and all the advice and all the arguments won’t change the selfish politicians ways. They, even those who pretend to want the FairTax, secretly want to keep the same system we now have, the country be dammed. Campaign contributions reign supreme and to keep them coming in they need a tax code so complicated, so long, so obscure and hidden from the light of day, that they can amend it without notice, and amend it to the benefit of the one person who will give the largest contribution, to their campaign. 8 to 10 thousand amendments have been added in a few years. Do any of you know a single one and who benefitted. I thought not. We will have to pull an Egypt, Lybia, Tunisa or some other sand dune republic, move, just to get what we should have had all along. POLITICIANS BEWARE========
No guarantees can be given that you will not be one of the bloody bodies left on the street, if you fail to heed the advice that would save the republic. ALL IN ONE MOVE:
1. Repeal the 16nth Amendment to the constitution.
2. Dissolve the IRS.(Drive a stake thru its heart)
3. Repeal all Federal tax laws.
4. Pass the FairTax Bill now pending in both houses.
5. Cut spending by one half.
6. Pass a constitutional amendment requiring a balanced budget.
Then stand aside and watch the prosperity we want and deserve. Companies will be super profitable. Thirteen trillion now kept abroad will come home. The 80% of us who, thru not fault of our own are not in compliance with the tax code, will be decriminalized.
I think too few Americans are actually reading Randy, Caleb, Roger and me.
We all agree we need balanced trade, we generally agree how to get it.
None of us has the power to tear down the barriers to the solution, erected by our successive governments over the last 50 years.
We are all screaming into a howling wind, while those we sent to fix things, fell right in with those who do not want it fixed.
Maybe a revolution is needed.
Jefferson said that periodically, democracies must be oiled with the blood of patriots and despots. Who will give the blood of the patriot so we can get rid of the despots?
I think this thread of discussion is most frustrating. Yes there are national and international problems with our trade system that can only be addressed by policy changes and implementation. The author of this site is offering up an idea for regular folks all over the country to help offset the jobs we have lost by supporting the manufacture of products we still make. This is a great idea and one where you don’t need to be elected into Congress or be a millionaire to see through.
But this very simple and important action call has been missed by most of the writers on this blog post. How many times are you folks going to write about the 16th amendment and the Fair Tax? I mean, really… WE GET IT. You think that will solve all our problems. Now step out of that idea and into the whole premise for this blog. Let’s talk about this simple act of buying goods we make when we can.
The dismissal of our tax problem as the obstacle to balanced or a trade surplus is like Yogi Barra looking for a dime under a street lite, because that is where there is more light, but not actually where he lost his dime.
For you youngsters, Yogi was a very colorful character, who said very funny things that had no logic, but was a great baseball player and a good human, but not very logical.
If we fix the tax policy, you don’t have to fix the hundred other things wrong, so why ridicule those of us who know the problem, by concentrating on looking under the street light when that is not where we lost the dime.
And yes the FairTax (not a typo, it is one word) not a VAT and not with an income tax to go with it.
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Thanks for finally writing about >Warren Buffet’s Sobering
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