A Simple Plan To Balance Trade And Bring Back All Those Jobs

We have an enormous, humongous and ongoing trade deficit. This means we buy more from other countries than they buy from us and we do this every year.

Trade is supposed to be balanced. Instead we have been running continuing trade deficits since the late 1970s. A trade deficit drains our economy and forces consumers, businesses and government to borrow, just to keep going. This means that jobs, factories, entire industries and literal boatloads of money have been leaving the country – it really adds up because we do this every single year. We have to do something about this.

The "Buffett Plan"

In May's post, Balancing Trade – Remember The “Buffett Plan” I described the 2003 "Buffett Plan" proposed by Warren Buffett, who was very concerned about the damage done to our economy and unemployment caused by our ongoing trade deficit.

The government could issue “Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports.” The number of import certificates determines the level of trade imbalance or balance that we allow.

A few years later Congress tried to address the problem with legislation designed to balance exports and imports.

Senators Russ Feingold and Byron Dorgan proposed the The Balanced Trade Restoration Act of 2006, similar to Buffett’s plan. The bill warned, “The surging trade deficits could soon create a balance of payments crisis for the United States, which could wreak havoc with the economy of the United States.” The bill didn’t go anywhere.

And then (from the same post) someone else brought up the Buffett Plan:

In a 2011 article, “What Would Buffett Do? — A Plan to Balance Trade, Create Jobs and Restore American Manufacturing,” Bill Parks goes into detail on a similar plan, and suggests a mix of private and public sale of the import certificates. He also suggests that the government could adjust the ratio of exports to imports as needed.

A New Stab At This Simple Plan

At the site Economy In Crisis, Kenneth N. Davis, Jr., Former U.S. Assistant Secretary of Commerce writes about the Balanced Trade Restoration Act of 2014. Davis notes that "imports have been the single most damaging blow to our domestic industrial base that we rely on for national security and income as well as for a strong economy and good jobs."

In the Balanced Trade Restoration Act, Davis has put together a proposal that, while inspired by the original Buffett plan, offers an updated and more specific legislative plan for making it work. Davis writes,

My group, Balanced Trade Associates, believes we have a bold, realistic plan to deal with the import problem. It could eliminate our 700+ billion dollar annual trade deficits within 3 years. Our law would also require 3 years of modest 10% annual reductions in our imports that now run at 2.1 trillion dollars. The answer is our proposed new legislation: "The Balanced Trade Restoration Act." With it, the U.S. would restore our practice of maintaining modest annual trade surpluses with the rest of the world. Unlike most competitor nations, we abandoned that sound policy to emphasize globalization in the late 1960’s.

The text of the Balanced Trade Restoration Act of 2014 is included in his post at Economy in Crisis, but put simply, import certificates are issued based on exports, you need a certificate to import:

The government would create "a Balanced Trade Import Certificate Program."

The program would issue "import certificates" that act as a license to import "a good with an appraised value that is equal to or less than the face value of the certificate."

Goods cannot be shipped into the country without a certificate issued equal to their import value.

The certificates would be issued based on exports. The Commissioner of the program would determine how many such certificates to issue, starting at the current level of imports and tapering down by 10 percent a year for three years.

After three years we enter a "Continuous Maintenance of Balanced Trade Period" where certificates are issued equal to the amount we export.

Bob's your uncle; trade is balanced.

It might sound like a lot of paperwork, but actually it's just an IT/computer problem – setting up a data center with a database of exports, the resulting certificates and issuing certificates for incoming shipments by importers.

Does This Proposal Violate Trade Agreements?

While trade agreements contain measures against import restrictions they also call for balanced trade. This is not an import restriction, it is a balancing measure. The General Agreement on Tariffs and Trade (GATT) allows import restrictions in situations of balance-of-payments. Trade not only should be balanced, it must eventually be balanced because the damage done by unbalanced trade to the economies of countries and ultimately to the world's economy.

A Cap-And-Trade System To Incentivize Exports?

Davis' plan calls for issuing certificates to "qualified" importers on a fair basis to prevent giants like Walmart from cornering the market. From the proposal: "Certificates shall be issued by the United States Customs and Border Protection to any qualified importer, as determined by the Commissioner. Certificates are non-transferable. The Commissioner shall determine the fee for Certificates such that all costs of administering the Program are paid by the fees."

My own thinking is that a regulated (to prevent cornering the market) cap-and-trade (transferable certificate) system that allows exporters to sell those certificates to importers for a market price would still be beneficial. Because we import more than we export the certificates would have an added value, creating an incentive to export. It would also subsidize those exports. Corporations respond to incentives and this would create an incentive to export, which would create jobs. Once trade is balanced, those incentives are reduced, so it is self-correcting.

But either way, this can be worked out as the system is set up. Hopefully experts would provide testimony and a consensus decision would be made based on the best way to proceed to help our economy and fight the enormous, humongous trade deficits.

And So, In Conclusion

I end this post as I ended the May post. The Buffett Plan was just one idea for balancing trade. But balance we must. As Buffett warns, these huge trade deficits cannot be sustained. They are draining our economy. There has to be a reckoning. We have not faced that reckoning yet, but it is inescapable. It has to happen. We have to tackle this as a country, with a national plan.

Petition

While we're talking about balancing trade, the Coalition for a Prosperous America has petition to Congress: Congress should direct the President to pursue Balanced Trade now as the principal trade policy objective.

We, the undersigned individuals and organizations, request that Congress adopt balanced trade as the primary national trade goal by adding the following language to future trade-related bills: "The principal national objective for trade in goods, services and agriculture is to achieve an overall balance of payments over a reasonable period of time, eliminate persistent trade deficits and reverse the accumulation of foreign debt."

Click through to add you name, please.