USA-imports, (an immodest proposal).

Warren Buffett wrote of a proposal to eliminate USA’s trade deficit of goods. The article, “Squanderville” was published in 2003 by Fortune magazine. I believe his proposal would succeed and increase the aggregate sum of USA’s imports and exports. His proposal would halt and reverse our deindustrialization, thus inducing our GDP and median wage (adjusted to the dollar’s purchasing power), to be more than otherwise.

If exporters of goods from the USA choose to pay a fee to defray US custom's expenses, their goods will be assessed and transferable IMPORT Certificates (for the assessment value) will be issued to them. (If exporters don’t choose to pay, the goods leaving USA are not assessed and thus no certificate’s issued).

Importers would be required to surrender IMPORT Certificates for the assessed value of goods entering the USA. Surrendered cetificates are cancelled. The exporter's motivation is to profit from the sale, trade or use of the certificates.

Unlike a tax or tariff, the fees will not be a net source of government revenue. They will at the very least cover the government’s export assessment and certificate issuing expenses and will be prohibited from exceeding all government expenses due to this proposal. This market, (not government) driven proposal is restricted rather than “pure” free trade and is certainly pure free enterprise.

The proposal grants government no discretion of policy.(Assessing the value of goods is a technical, not a policy decision). It will increase rather than decrease USA's agregate imports plus exports. Depending upon how it’s drafted, the proposal is mostly or fully self funding. Eliminating USA's trade deficit would increase our GDP and median wage.

No other trade proposal would halt and reverse our deindustrialization with less government intervention or increased prices of imported goods. USA would still enjoy cheap, (but not the absolute cheapest) imported goods. The proposal’s simple logic is irrefutable.

Jim Hightower said "We should keep our factories here and import our CEO's. They'll perform the same tasks for less money ".

From the CIA Fact book, (2004), a United States Government publication:“(USA’s economic) Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups”.

All of this site’s other messages further explain and support this first message. The next message is simply a list of 7 other subtopics that should hopefully answer your questions and concerns. None of the messages are more than a page in length Only message #8, “Assessment adjustments” differ materially from Mr. Buffett’s original proposal.


Warren Buffett's proposal was published in Fortune Magazine, 26Oct03.
that original article can be read at the site
of http://www.pbs.org/wsw/news/fortunearticle_20031026_03.html
.


Please post your comments regarding this blog. Respectfully, Supposn

List of message subjects

Message list:
1 - USA-imports, (an immodest proposal).
2 - list of message subjects.
3 - Would prices of imported goods be regulated?
4 - Manufacturing's economic significance.
5 - David Ricardo's comparitive advantage.
6 - Trade ageeements.
7 - Transferable Import Certificates, tariffs, fair trade, quotas.
8 - Assessment adjustments.
9 - Outsourcing services.

Would prices of imported goods be regulated?

Similar to any other transferable security, the Import Certificate’s market price is regulated by supply and demand. The certificates are only issued to exporters of goods from the USA that choose to pay the assessment expense fees. The supply is effectively determined by foreign demand for USA goods. Certificates surrendered for goods imported into the USA are ‘retired”. Regardless of how low the certificate's market price falls, the USA could never (unlike tariffs) suffer a trade deficit of goods. Demand for certificates are determined by the USA consumers demand for imported goods. The exporter’s profits from resale of the certificates are an additional cost to USA’s consumers of imported goods and a subsidy of USA’s exported goods.

If foreign producers should ever considers the certificates to be "overpriced", they may (directly or indirectly) export goods from the USA and ship them anywhere else in the world in order to obtain certificates. They may also choose to accept a lower profit margin rather than abandon their share of the USA market. The certificate’s price is not directly dependent upon the gap between USA and foreign production costs.

Manufacturing's economic significance

Free trade benefits both trading nations. It’s the trade deficit that harms USA’s economic and social welfare, (Refer to the post of “David Ricardo’s Comparative Advantage”). Even with adjustment for the dollar’s inflation over a half century, our annual deficits and their harm increases. The world's and the USA's production and consumption of goods continues to increase. The proportion of USA goods consumed both within the USA and the entire globe continues to decrease. There is no national benefit from a trade deficit.

A completely automated factory employing no production labor, requires the support of materials and other services. Accountants, maintenance, janitors, transportation of materials and components, are all required before the finished products reach the factorie’s shipping platform. Those supporting goods and services are generally of domestic origin. To the extent domestic goods and services are utilized, all domestic production contribute to our GDP and median wage.

The production of foreign goods contibute little or nothing to the USA’s economy. Domestic and imported goods do not economically differ after arriving at a USA port of entry or a USA producer’s shipping platform.

Manufacturing is of greater importance because the goods and services supporting factories are generally great as or greater than what's required for most other industries. Manufacturing has a great (multiplier) effect on our GDP. Individual businesses are more or less unique, but a domestic factory's contribution to GDP is generally much greater than that due to a service site such as an administrative office or a retail outlet. Excluding the value of unrefined petrolium, manufactured products account for almost our entire global trade deficit.


I believe there’s a symbiotic relationship between manufacturing and technological knowledge. USA’s deindustrialization has begun to cost us our technological edge. Our colleges and universities are not producing the creators of the globe’s technical future. Due to USA's deindustrialization, we invest less and others more for research and development. Those who sow less, harvest less. As we manipulate materials, and create products, we learn more of the materials, tools and the products. If we do not manufacture today, will we be able to resume manufacturing in the future?

Many are concerned about our military’s dependence upon foreign manufacturers. There’s of course some concern regarding security of information and prevention of sabotage. If national governments of our suppliers disagree with our policies, will it affect the production and delivery of our strategic needs?

David Ricardo's Comparitive Advantage

David Ricardo wrote in the 18th century that a nation should export the products that it can produce with a lesser production-cost/price ratio, and import those of which they have the greatest cost/price ratio.

Regarding social studies, (I’m opposed to the term “social science”), we make a big deal of concluding the logically obvious. This policy's satisfactory if there’s sufficient foreign demand for your exports at your price.

When Ricardo was writing of comparative advantage, democratic nations were a new, daring and rare experiment. There have been democratic city-states, and USA’s democracy was said to have been inspired by the Iroquois nation of tribes, but I believe the USA was just establishing the first republic and England's democratic monarchy was evolved. Minimum wage if conceived was radically utopian.

Then much more than now, no government with a standing army had reason to be overly concerned for or fear their own citizens. Only powerful and privileged nobility need be respected.

Then as now if a nation’s production cost exceeded the global price there would be no demand for the nation’s exports. In Ricardo’s time if there was insufficient global demand due to labor expense, wages could be driven down until production cost would satisfy the global market. Then poverty or starvation of large segments of the population was simply an unfortunate and hopefully temporary condition.

Today even a tyrannical government must have some consideration for the majority of their citizens. In democratic USA we’re inundated with illegal immigrants and cheaper imported goods and our median wage is less than otherwise. The effect upon our wage scales is mitigated by the minimum wage and (at no small cost to all levels of our governments) social welfare provisions. Remember the French revolution was one of the first examples of a national “Burn baby burn!” syndrome. The city of Paris is still almost synonomous with the nation of France.

Today communication and transportation is exceedingly faster and more reliable. A nation with an absolute cost advantage of a product, to the extent that trade is determined by economics rather than politics within a “pure” free trade environment, becomes the absolutely complete producer of that product. Today nations are more democratic thus less able to decrease their median wage to evade this truth.

Within an environment of less than “pure” free trade, (Warren Buffett’s proposal for IMPORT Certificates), comparative advantage works precisely as Ricardo described without the governments resorting to decreasing wages or additional spending for social welfare.

Trade agreements

The World Trade Organization will certainly be opposed to these transferable IMPORT Certificates. I’m told that most trade pacts, (including the WTO) provide for six months notice of resignation. The WTO could regretfully accept USA’s resignation or our trade policy of IMPORT Certificates. Sovereign nations often act in their people’s best interest. I object to USA accepting lesser median wage because it is in China’s best interest.

USA's policy of IMPORT Certificates advantage or disadvantage to any other nation would be dependent upon the nation's trade balance of goods with the USA. Importers of goods into the USA will try and usually succeed to raise their prices due to the expenses of acquiring IMPORT Certificates. Due to the extent that foreign good's prices increase within the USA and USA good's prices decrease abroad, foreign goods suffer some competitive advantage. Foreign purchasers of USA’s manufactured goods will be able to negotiate cheaper prices (due to the seller's profiting from the transaction’s byproduct, (the resale of their acquired IMPORT Certificates).

A world that couldn't prevent the trade and planting of land mines can not readily prevent sale of trucks and washing machines to the USA. If any nations choose to discard their shares of the USA market, other nations will be pleased to pick up the slack.

Nations that refuse to buy from us, (refuse to negotiate cheaper prices for our goods) would deny the opportunity of all, (including their own) entrepeneurs from accquiring IMPORT Certificates. Thus the world, (including themselves) will be to that extent denied the opportunity to sell to us.

All of this is dependent upon the mighty USA domestic market. Each year our trade deficit causes our domestic market to proportionaly diminish as other nations grow greater. It is desirable that we initiate this trade proposal sooner rather than later.

Transferable import Certificates, tarrifs, fair trade and quotas

Fair trade is an inexplicable term that’s often evoked by labor organizations. Fair trade proposals all seem to be based upon importers (into the USA) paying to cover the difference between USA and foreign direct and/or indirect production costs. Many fair trade schemes go beyond financial considerations. Their proponents want to devise the trade system to consider and grant financial weight to considerations that are in them selves other than financial.

Issues such as ecological pollution, child or slave labor, adequate work environment or wages are not unimportant. If our government begins to intervene within other sovereign nations, eventually it may lead to USA government increasing intervention within our own traders and trading organizations. Such intervention must increasingly grow to greater affect all of us.

Rather than a complex trade policy that addresses non-financial issues, I prefer that if any such issues are addressed, they be addressed by separate laws and regulations. Global systems, devices and schemes to consolidate, solve, or regulate too many tasks or problems generally fail to deliver what they promise. I perceive fair trade as tariffs with more bells and whistles.

Tariffs may discourage imports and/or provide government revenue. Dependent upon how the tariff’s drafted, they increase the price of imported goods by a percentage of the import product’s assessed value or of a finite amount based upon the quantity of goods imported. A tariff that’s too low can not accomplish its purpose(s). Economic harm may be caused by too great of a tariff. These considerations are often a cause or pretense for “tweaking” the regulations, which of course encourages all interested parties to lobby for their opinions and/or advantages. Money, (the mother’s milk of politics) generally weighs in these decisions.

The exporter’s profits from the resale of transferable IMPORT Certificates are in effect an export subsidy. The market price of the certificates, (similar to any transferable security) is dependent upon supply and demand. The supply of certificates is directly related to the volume of goods exported from the USA. The demand for certificates is directly related to USA consumers demand for imported goods. The USA consumers’ increased prices of imported goods are directly and almost entirely related to the certificate's open market price. The government's assessment expense fees are of less consequence.

Within a free trade system the nation’s import volume is absolutely market driven. Within an IMPORT Certificate system, it’s driven by the open market price of the certificates.

Within other systems, (i.e.; tariffs, fair trade and quotas) import volume is generally determined directly or indirectly by government decisions. These are generally driven by determinations of economic and/or political and/or financial and/or market considerations. They are not directly (or in my opinion not sufficiently) driven by the market.


The market (rather than government) driven IMPORT certificates proposal would certainly increase USA’s production and exports. IMO no other proposal could halt and reverse USA’s deindustrialization with less increase of import prices or government intervention. USA can enjoy cheap, (but not the cheapest) priced imported goods.

Assessment adjustments

None of these adjustments were in Warren Buffett's original proposal. I believe that this first one, export assessments should be adjusted to exclude the value of precious or scarce stones and minerals inherent to or within the materials of assessed goods is imperative. Otherwise entrepreneurs would be exporting gem encrusted cast gold paper weights to acquire transferable Import Certificates in order to import more labor or technologically intensive goods. This would evade the proposal's purpose. It is a "deal buster".

Excluding the value of specified rare or scarce natural materials inherent to goods decreases but generally do not compltely eliminate the goods net assessed value. Such goods as jewelry, cut or polished stones, refined oil products all would retain some their assessed value. It’s generally preferable, (but not an absolute necessity) to draft laws and regulations in a consistent manner. It would be desirable to have both imports and exports of the same goods be assessed in the same manner.

I prefer we exclude the value of fossilized materials from our exports. We can not readily replace such material. Encouraging their export would be contrary to our best interest.

The USA is an increasingly greater net importer of fossilized materials and products. Requiring Import Certificates for their full value increases the certificate’s market price. This additionally increases the USA consumers’ price of both domestic and imported refined oil products and all other imported goods. It also increases the certificate’s subsidy affect upon USA exports.

Americans consider oil and gas a necessity. It is politically rather than economically more palatable to exclude the value of fossilized material from import assessments. (If the USA chooses to discourage oil consumption, we could increase the tax on oil, gas and gas guzzlers. All of the additional price will be government revenue).

Importing USA price supported commodities are currently restricted. The USDA subsidizes their production and additionally subsidizes their export. I prefer that we not grant them an additional export subsidy. The USDA could modify their regulations of these commodities to consider the Import Certificates. The decreased government expense would benefit the general budget and thus our taxpayers.

Artifacts, antiques or memorabilia (if assessed at all), should not be authenticated. Their assessment should be based upon their quality as replicas rather than as genuine. There’s no economic advantage from last century’s production. Exports produced more than two years prior to shipment from the USA should not be assessed. The tourist industries will lobby for some reasonable exclusion for goods brought into the USA by tourists. All of this is not economically significant.

If canned fish enters the USA we can assume that it was transported from a foreign port. We may be able to treat processed and/or packaged sea food similar to our treatment of other imported goods. If a USA fishing vessel enters USA waters, can we assume that its cargo of fresh sea food was obtained by her crew? Couldn’t the cargo have been transferred at sea from a foreign vessel? I don’t know the answer to this question.

Various government agencies will complain that this trade proposal denies them international negotiation discretion. Often government agencies have traded away the interests of some USA industry(s) in order to acquire what’s (in the government’s opinion) a greater national benefit. Under this proposal, USA negotiators (in regard to global trade) would be forced to shrug and reply “We’re not empowered" or "We lack the legal discretion to grant what you’re requesting”. IMO the Presidential power to utilizing “fast track” negotiation has done our nation much more harm than good. I’m opposed to granting government any more discretion than is reasonably required.

Outsourcing of services

The international trade of services (unlike that of goods), often require only electronic signals to transmit images and other information past borders. Many tasks no longer require geographic proximity.

It's possible to export medical specimens for less expensive analysis. I suspect that if it were possible to hinder the shipping of specimens, they could be read and converted to electronic signals to cross the borders. If confidentiality were the issue, USA companies would transmit using ID codes unknown to the foreign service providers.

Due to our higher costs, the USA is going to experience a loss of many service jobs. These will not be limited to clerical and personal accommodation tasks. Many higher paying professional and technical tasks will be affected. The loss of these service jobs will run faster and deeper than our continuing manufacturing loses.

State and federal licensed Professionals will be protected, but these same professionals will outsource any feasible task from their offices in order to remain cost competitive.

Unlike the importation of goods, I’m unaware of any proposal that could effectively inhibit the outsourcing of services and be compatible to a democratic nation of free speech and enterprise.