HN Reader

A long time ago, Britain was the dominant economic power in the world.

Britain had a massive trade deficit with India. It imported far more from India than it exported to India.

But what Britain did was import massive amounts from India and made high value goods at home and provided high value services that couldn't be provided elsewhere.

Should it have flipped the other way? In 1800, should Britain have suddenly shifted gears and started massively exporting to India in order to balance the trade?

Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold. The situation is similar in a modern context since official colonization is kind of gone. The US takes in lower value products from around the world and sells them back to the original country at a higher price due to some sort of added value.

Should America do the opposite? Should we drop all of our high value scientific and medical research, drop our engineering, and go all in on making t-shirts to balance the trade deficit? Because we very well could do this. We could steal away the fine industry of Cambodia and Bangladesh and have them buy all our t-shirts and balance the deficit pretty quickly. But is that a long term benefit?

Cambodia and Bangladesh are countries that can't really afford to buy massive amounts of American high tech exports or foods. But they're essentially colonies that export goods to other countries, and through accumulating wealth through that development, more people can afford to buy American high tech products. But we're demanding that these countries buy lots of American products now with money that they don't have. The only way to balance that is to make things they can afford. Which means low value items.

“Buffett likened the situation to a wealthy family gradually selling off parts of its estate to sustain its lifestyle”

Yet, actually the proper analogy, would be a wealthy family using their disposable income to buy products that make their life easier, and sometimes, even make them more productive so that they can have even more income.

So, you don't want to have "the world" own shares of american companies?

Okay, let europe just sell all their stocks and ETF. But also, let them build alternatives to all american products. Let them keep the money they are spending for their Windows and Office licenses, their Netflix and Disney plans. Let them no longer create ad revenues on youtube. Let them buy korean Samsung phones instead of american iPhones.

Would that be a good deal for the american people?

The USA captures most of the value from selling iPhones worldwide, but yet the entire value of an iPhone counts only as a Chinese export.

Something is not right with how we calculate these things.

I'd have expected better from Warren Buffett. It's not a zero-sum game, the developed countries running chronic trade surpluses like Germany and Sweden (my home country) are fooling themselves, because the only way they can do that is by putting a brake on domestic consumption by keeping wages low.

Everybody in the EU would be better off if those countries actually let their consumers spend the money that they're hoarding. All of that spending wouldn't go on foreign goods, so it would even benefit their own producers as well. Yet German politicians indoctrinated in stupid frugality (that once had a point, but is completely outdated) continue to scold countries that run trade deficits in order to buy German goods instead of suffocating their economy and making it even worse for everybody, especially Germany.

It seems like the way to "fix" a trade deficit is to create products the rest of the world actually wants to buy. The application of any reciprocal arrangement, whether tariffs or these ICs as proposed in the article only achieves "balance" through punishing others.

Aside from the obvious consumer technology and software I am hard pushed to think of any USA produce I would buy that would meet the standards we have in the EU.

The simple reality is that the USA consumes more than it produces.

Interesting, and worrying at the time, but he clearly turned out to be wrong. The trend never stopped [1] and is not obviously responsible for any negative economic trend. The trend has continued [2]. The thing to worry about is probably not that it is happening, but who is holding these investments.

[1]: https://www.bea.gov/data/intl-trade-investment/international...

[2]: https://fred.stlouisfed.org/graph/?g=1HrHY

The US exports alot of virtual goods, that is like technological services. I reckon non-US countries should start tariffing all US based internet services as a reciprocal tariff if there's a trade imbalance between goods versus services.

It's interesting how similar the Trump plan is to the one Buffett suggests. Clearly it trades simplicity of implementation for flexibility. It seems to me like there are two major differences: doesn't incentivize exporters as much, since they don't receive ICs; and punishes imports from some countries more than others vs. all having the same IC market price applied.

Also interesting to update some of the numbers from the doc. Buffett mentions the $2.5t net foreign ownership vs. $12t in total US stocks in 2003; the values are now $26t vs. $62t.

Foreigners are always good as a target for blame, but much more wealth has been transferred from American workers to the Oligarch class than via trade deficits. What we have here is a class war, not a war against other working class people in other countries, but the wealthy are winning it without firing a shot.

Yesterday I learned that being the world’s reserve currency goes hand-in-hand with a trade deficit: https://en.wikipedia.org/wiki/Triffin_dilemma. And the US profits immensely from that status of the USD.

Business people don't necessarily make the best economists or politicians, that's the main lesson from the last few years to me.

There should be a (2003) at the end of the post title.

This would be true for any other country, but the dollar is the world's reserve currency. The US can simply go 'money printer go BRR' and create money out of thin air, without devaluing the dollar too much, which it can exchange for physical goods.

The US creates a 'trade deficit' by swapping things that have imaginary value for things that do not. Under these circumstances they'd be foolish on not running a trade deficit.

But if Trump gets his way, that world will be soon over, and people will trade in whatever they have so will no longer be compelled to hold USD.

Strange. I, as a UK citizen, don't seem to buy almost any physical USA goods at all.

I think the parable of Squanderville and Thriftville is interesting and it reminds me of the chapter of Henry George’s Progress and Poverty that also warns that renters can be a slave to the landowner (https://www.gutenberg.org/cache/epub/55308/pg55308-images.ht...). I’m wondering to what extent is Squanderville a warning against monopolies and private property in land, as opposed to a warning against debt and trade deficits? Would Land Value Tax fix this?

Can someone explain to me how the US can reshore manufacturing without dramatically lower their standard of living? Maybe they can subsidize some essential industries but I can’t see a path to do it for everything.

You can have growing deficits without actually "selling the nation" when you account for growth and inflation.

Say foreigners own 50% of US assets. When someone creates in the US a company ex nihilo and sells 10% of it to foreign investors, even though foreigners bought more US assets, this new wealth creation causes the % of foreign-owned US assets to diminish.

When foreign investors own US bonds, as inflation increases and the money supply increases, they end up owning less in real terms.

This doesn't account for investments that are limited in quantity such as real estate.

Also just because those are opposing forces, doesn't mean that foreign ownership wouldn't increase. As a matter of fact, when looking at the foreign ownership of US stocks, it has been steadily increasing.

A [2003] tag in the title would be appropriate.

I feel like a lot of people are really getting stuck on the Trump stuff and missing Buffetts core argument. Here's a pretty simple guy:

When the US has a trade deficit with China, it tries to balance that out by issuing debt in the form of treasuries.

As more treasuries get issued to foreign nations, the risk to American sovereignty increases. People really forget Japan's blitz on US real estate and businesses in the 80s and the drastic actions of that era the US took to knee-cap Japan.

So who’s to blame for the trade deficit? I’ll tell you who. It’s all the companies he invested in and made billions of dollars off of.

Because they all wanted to maximize their profit, so they ship their production overseas and now we have no choice but to buy “foreign goods“ from corporations that say they’re from the United States.

Corporations don’t care about countries, they care about profit. Countries are prisonsfor the workers.

Warren's plan was to sell to exporting nations import credits (ICs) that are less fundamental than national bonds, and that diminish intergenerational unfairness from foreign real estate holdings. The proposal sounds like a gentle version of capital controls or outright bans on foreign land ownership, which US trading partners implemented.

The irony of course is that Warren is a leader of the very business community that struck this Faustian bargain, and he probably accumulated a fair quantity of land and bonds through exactly this process. He's basically pleading with politicians to change the math so he can make money a way that is better for the nation.

OP, did you also read Gray Mirror this morning. Curtis Yarvin went onto defend the IC idea this morning as a way to defend nascent industries (new industries). Interesting article, also presented the ideas of mercantilism of Friedrich List (originator of the Zollverein idea).

Billionaire's take. Plutocracy works like that.

So he says foreigners buy US assets for the dollars US pays them for their goods, and that's the problem - the US being sold out.

My question: don"t these foreigners become Americans in a sense? E.g. by holding shares of US companies they have common interests with other shareholders.

Upd: I mean, if considering nation as a partnership, those new asset co-owners are new parnters. Does it imply old co-owners are deluted? Only if the total value of assets is not growing proportianally to the new shares.

If a country decides that it is important to not be a net importer the method to achieve that proposed by Buffett in the article is infinitely better than the way Trump is going about it.

Essentially what Buffett suggests in the article is a cap and trade system on imports.

To import $X worth of goods the importer must have $X worth of ICs (import certificates), which consumes those ICs. ICs are created when exporters export, with each dollar of exports creating a dollars worth of ICs.

ICs are tradable so an exporter does not have to use the ICs created by their own exports. They can sell them to importers.

Note that under this system it is perfectly fine to have a trade deficit with any given country, as long as their are trade surpluses with other countries that balance it.

Trump wants trade with each country to be balanced (or a surplus).

Consider this hypothetical.

• Country A needs to import some natural resource. They import it from country B and use it to manufacture something.

• Country B doesn't need anything that A makes, but does need something from country C.

• Country C doesn't need anything from B, but imports the thing A is manufacturing.

If Trump were running country A he would view this as A getting ripped off by B. Under Trump logic B would be getting ripped off by C, and C would be getting ripped off by A, but he wouldn't care about the former and would probably by bragging about the later but not calling it a rip off.

One of the big reasons money was developed in the first place was so goods did not need to be balanced between each pair of traders.

Before money if a farmer had chickens and wanted a goat he had to find someone who wanted chickens and would trade a goat for it. If the only guy with goats he could find didn't want chickens but wanted a pig the farmer was out of luck, unless he could find someone who had a pig and wanted chickens. It can keep going...maybe pig guy wants a cow so now the guy with chickens also needs to find someone who will trade a cow for pigs.

Money made it so trades become money for goods instead of goods for goods. Chicken guy just needed to find someone with a goat for sale for money instead of finding someone with a goat who specifically needed chickens.

Same thing applies to trade between countries, and for some inexplicable reason Trump wants it to work like the old chickens for goat days.

(2003)

(But still good.)

This looks like the end of story is that the US will consume less, "more expensive" and home made. I think it will have disastrous consequences for the U.S IF the rest of the world keeps trading free. There will be more jobs in the U.S but in the end will become a more inefficient market.

As a European this whole debate i sickening.

Trade deficit is a blunt and ineffective way to model international trade on this level, but it is easy to point at and say "look at this large bad number!" which is exactly what is going on. People are primed to interact with that through social media, etc.

The American trend currently is that any trade deficit is bad. It simply isnt. It is idiotic to state so.

The whole point of unequal import and export is that every single country should not strive for importing as much as it exports across all sectors. It is extremely inefficient for every country to specialize in everything equally. What then is the point of international trade? I produce steel, you produce tractors, your neighbor produces wheat. We have mutual dependence across our specializations in the market.

What is missing from the debate is that import/export equilibrium should be achieved on a global level, not on a national level. This is taking something that is a healthy driver for international trade and framing it as if trade partners are forcing others to sell out cheaply.

They aren't. They have found their niche. Find yours or step back.

I think we should expect the US to lose its reserve currency status if these tariffs continue and we should also expect its tax revenue to drop. The combination may make it more likely to see a US default on its debt as there will be less demand for its bonds around the world and less ability to pay high interest rates.

Seems unthinkable I know but we are in weird times.

If Trump doesn’t back down we may see a very interesting time in the US economy. I should point out that many oligarchs in Russia established themselves by making bold moves in the turbulent post Soviet times. This may be similar time period for the US where a new generation of winners emerge.

When they talk about trade deficits do they take into account tourism and other cross-border services?

Or is it just goods, and in that case why focus on goods?

Americans should study Germany and Japan. Do their economies look healthy? Are those manufacturing jobs attractive? Are the Germans and the Japanese richer? Do Germany and Japan have good economic prospects? I'll spare you the research. The answer is, "No". Turns out, having an economy based on manufacturing high-end door knobs in 2025 is not great. Economic growth and innovation is not there, because there is so much growth and innovation that you can eke out of high-end door knobs. These enterprises are great for the families that own them, but they employ a relatively low number of workers, those jobs do not pay that much, and they exist is a steady-state. Well, only until China and India figure out how to also manufacture high-end door knobs.

Honestly I may just be missing the point, I'm not an expert on economic theory, much as I would like to be.

But wouldn't literally selling the country imply the biggest possible trade surplus? It's all export and no import.

This article was printed on November 10th, 2003 (!).

Brilliant. Competence. Why can't we have that. A much smarter approach to tariffs

He is wrong in one major respect, but I see economists do this frequently with GDP - American companies aren't. They aren't solely American companies - they (or at least the large ones worth mentioning) have overseas components to them. Sometimes majorly so.

So those foreigners who own parts of "American companies" are really owning parts of international companies.