In 2003, Warren Buffett proposed an import certificate program to eliminate the US trade deficit. We must reduce the deficit, he argues, so that the US is not forced to sell more of its assets to “foreign holders.” As a result of Buffett’s proposal, Sens. Feingold and Dorgan introduced a Senate bill, and economists have published several studies. Advocates argue that the program would create short-term inflation in order to achieve long-term stabilization and growth.

The policy proposal seeks to balance the US trade deficit, and carve out a more neutral net investment position for the US government.

The Import Certificate (IC) program would require that all importers hold ICs equivalent to the value of the goods that they seek to import. Under the program, the government would distribute import certificates to all US exporters. Each firm would receive a number of ICs equivalent to the value of their exports. These firms would then be able to use their ICs to import goods, or sell their ICs on a market. Importers would purchase ICs equivalent to their desired imports on the market from exporters who have no use for their ICs. As long as the demand for imports exceeds the demand for exports, the cost of ICs will exceed $1, and there will exist an effective tax on imports.

 

For example, Company A exports $5M worth of goods. Instead of adding $5M in revenues, Company A gains 5M ICs. If Company A does not wish to import any goods from abroad, it can sell its ICs on the market for the market value (most likely above $1). Company B wishes to import $3M worth of goods to sell in the United States. Company B must buy 3M ICs in order to complete the transaction. Under the new program, if ICs cost more than $1, Company B will incur costs exceeding $3M to import the goods.

The government must create a market for ICs and develop a process by which it monitors the distribution of credits. An immediate transition to this new program would likely shock the economy. Analysts estimate a 9% increase in the cost of imports and a 4% rise in short-term inflation.

 

Sens. Feingold and Dorgan proposed a more gradual approach in their Senate bill. They declared that each dollar of exports would be awarded $1.40 in ICs in the first year, $1.30 in the second year, and so on for five years. The IC program for oil would be phased in over ten years.