Buffett: America's Growing Trade Deficit Is Selling the Nation Out from Under Us [pdf] (2003)
89 comments
·April 6, 2025throw0101d
That's from 2003.
In a more recent interview in March 2025:
> Asked about how tariffs will affect the economy, Buffett stated, "Tariffs are actually, we've had a lot of experience with them. They're an act of war, to some degree."
> I asked, "How do you think tariffs will impact inflation?"
> "Over time, they are a tax on goods. I mean, the Tooth Fairy doesn't pay 'em!" he laughed. "And then what? You always have to ask that question in economics. You always say, 'And then what?'"
* https://www.cbsnews.com/news/warren-buffett-on-legendary-was...
rayiner
> That's from 2003.
Would you argue that the period between 2003 and 2025 have strengthened or weakened the case for free trade?
twoodfin
Strengthened.
In the US this has happened:
https://fred.stlouisfed.org/series/MEPAINUSA646N
https://fred.stlouisfed.org/series/DSPIC96
Meanwhile across the entire world this has happened:
https://ourworldindata.org/history-of-poverty-data-appendix
You can argue the growth of globalization & lowering of trade barriers were unrelated to this up-and-to-the-right, but it’s hard to argue they’re making things worse unless you really scope down to particular losers in a world of mostly winners.
hn_throwaway_99
I feel like those graphs and similar arguments are always trotted out, and they are an important piece, but there is more to the world than disposable income, and only using those stats completely ignores some very real negatives. You hint at it with "unless you really scope down to particular losers in a world of mostly winners", but I think you're vastly underestimating that:
1. Wealth inequality. Wealth inequality has exploded over the past few decades, and even if the median has gone up, the effects of widening wealth inequality can be very bad for society. First, as Charlie Munger once said, "The world is not driven by greed, but envy." Even if you're doing a little bit better, if everyone else is doing a ton better, this leads to you feeling like you're doing a lot worse. The rise of authoritarian politics in the West I think can be directly attributed by large swaths of society feeling left behind and like they are "getting screwed".
2. Related to the above, but finite resources, most especially land, are always vacuumed up by the wealthiest in society, regardless of any other level of incomes. So when there is a lot of wealth inequality, it can become prohibitively expensive to own land in any remotely desirable area, and this has huge negative societal effects (happy to go into this point more if you disagree).
3. The flip side of "optimized global supply chains" is incredibly brittle supply chains in the face of black swan events. Covid was a taste of this, though I think the global supply chain actually help up remarkably well for how enormous an impact Covid had. I think a better example would be something like chip production in Taiwan, which if it disappeared tomorrow would be absolutely devastating for the world economy.
4. Some countries that are now leaders in the world economy, like South Korea, had an extremely protectionist stance for decades in order to allow crucial industries to develop and not be undercut by cheap imports. I certainly don't think it's the only reason, but one reason Africa struggles so much is because they are flooded with cheap goods (or free goods in the guise of "charity") that prevent native industries from developing.
rayiner
But the political climate during that time period—starting on the left and now going to the right—has been that the middle class is being hollowed out. Is your argument that the Bush/Obama regime (recall that the Bush administration developed the bank bailout plan that Obama implemented) was basically correct? All the economy required was a little more regulation via Dodd Frank and the CFPB?
leereeves
That first graph says the median income in 1974 was the equivalent of $5335 in today's dollars. I don't think it's adjusting for cost of living, because people lived a lot better in 1974 than you could live today on $5k per year.
vannevar
Worth noting that the deficit bottomed out around 2006, then improved throughout the Obama administration before leveling out. It declined again post-pandemic.
https://www.macrotrends.net/global-metrics/countries/USA/uni...
So something reversed the trend Buffett was seeing in 2003.
oh_my_goodness
No fair bringing data. Share your feelings or move on.
throw0101d
> Would you argue that the period between 2003 and 2025 have strengthened or weakened the case for free trade?
For the US specifically, various considerations:
* https://twitter.com/ArmandDoma/status/1908189982789095677#m
* https://www.csis.org/analysis/do-not-blame-trade-decline-man...
* https://archive.is/https://www.wsj.com/opinion/free-trade-di...
mindslight
Hindsight weakens the case for free trade in 2003, along with the realization that the government would do very little [0] to mitigate the specific harms using the centralized gains (from massive monetary creation without much corresponding price inflation).
But in 2025, tariffs are closing the barn door after the horse ran out, went to horse college, settled down, had some foals, and saw them grow up and move into their own doorless barns. But that's populism for you, always responding to the previous crisis with an approach that will enrich its sponsors and then cause the next crisis.
[0] The Republican party's fake "fiscal responsibility" where most of that money was just handed to banks instead, driving up the asset bubbles. I'm saying this as a general libertarian from a conservative Austrian economics view, not as a Democratic partisan booster. But blame where blame is due.
AlchemistCamp
Another interesting question is, would you rather trust the thinking of a 70 year-old or a 90 year-old Warren Buffet.
For the vast majority of people, I’d pick the 70 year-old version even if they did live to 90. With Buffet, I’m not so sure.
tekla
Strengthened. People really fucking hate rising prices.
hayst4ck
Blockades are an act of war.
How expensive does a tariff have to be before it is a de facto blockade?
I think that comparison is much more apt than it first appears.
marcosdumay
Blockades usually refer to impeding a country to trade with anybody. Tariffs are only comparable if you consider the US tariffs to be an act of war against the US.
(Having said that, it's not such a ridiculous concept as it seemed.)
hayst4ck
A second in command of the US military, Jim Mattis, during Trump's first term said:
“Donald Trump is the first president in my lifetime who does not try to unite the American people—does not even pretend to try. Instead, he tries to divide us,” Mattis writes. “We are witnessing the consequences of three years of this deliberate effort... I swore an oath to support and defend the Constitution. Never did I dream that troops taking that same oath would be ordered under any circumstance to violate the Constitutional rights of their fellow citizens—much less to provide a bizarre photo op for the elected commander-in-chief, with military leadership standing alongside.
If you are ideologically in the group that he used the military against on American soil, or you are in the half of the divided country that he doesn't see as his supporters, then the concept is even less ridiculous sounding, cogent even. He's effectively taken a government that represents a whole country and turned it into a government that only represents half of the country. When you realize that all he supports are American oligarchs who are international in nature the comparison starts to get more and more and more cogent.
These are two of the complaints of America's founding fathers against King George III written in the declaration of independence.
"For cutting off our Trade with all parts of the world:"
"For imposing Taxes on us without our Consent:"
As far a "acts of war" against their own citizens: Israel is Gaza's government and that blockade is so strong it is called an open air prison. Russia is fighting to be Ukraine's government. China is Hong Kong, Tibet, and Xinjiang's government.
In an authoritarian's government, it is not your government, it is only their government. Authoritarianism is in many ways a state of persistent war against people, which intuitively makes sense, because war is how you resolve disputes when negotiation doesn't work. War is the state of power alone resolving disputes, which is also what authoritarianism is.
nabla9
No amount of tariff turns into de facto blockade.
blockade, embargo, sanction, tariff. Each are different and have different meaning.
hayst4ck
While you are lecturing me on words meanings, I would advise you to look up the meaning of "de facto."
If you were America's founding fathers and King George 3, the leader of their government, decided to put a 10000% tariff on goods meant for the colonies, do you think they would have felt blockaded?
throw0101d
> "Over time, they are a tax on goods.
To pile on this point, tariffs are a tax and a subsidy:
> Executives from U.S. steel companies were enthusiastic backers of the 2018 tariffs and have urged Trump to deploy them again in his second term. They have called for the elimination of tariff exemptions and duty-free import quotas, saying those carve-outs allow unfairly low-price steel to enter the U.S. and undermine the steel market.
[…]
> Higher prices for imported steel are often followed by domestic suppliers raising their own prices, which then get passed through supply chains, manufacturing executives said. For consumers already reeling from rising retail prices and inflation, pricier steel and aluminum could further lift costs for durable goods like appliances and automobiles, as well as consumer products with aluminum packaging, such as canned beverages.
> “The issue with tariffs is everybody raises their prices, even the domestics,” said Ralph Hardt, owner of Belleville International, a Pennsylvania-based manufacturer of valves and components used in the energy and defense industries. Steel and aluminum are Belleville’s largest expenses.
* https://archive.is/https://www.wsj.com/economy/trade/trump-t...
So tariffs are (regressive) taxes in the sense that consumers are paying higher prices (with the money going to the government). But they are subsidies in that domestic companies don't have as much pressure on prices and can get more money.
So if you want to help a particular industry might as well just go with subsidies directly instead of the taxation add-on as well.
tromp
The salient part:
> The time to halt this trading of assets for consumables is now, and I have a plan to suggest for getting it done. My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.
> We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.
Sytten
I am not sure this would haves worked since the return of the US stock market was quite high (due to that constant influx of foreign investment notably) compared to any other asset for people/businesses that wanted to invest their profit.
Also due to the reserve nature of the USD the dollar and international trade mostly done in USD there is a huge demand for dollars keeping it strong compared to other currencies. This fundamentally is at odd with an export driven economy.
rayiner
> Also due to the reserve nature of the USD the dollar and international trade mostly done in USD there is a huge demand for dollars keeping it strong compared to other currencies. This fundamentally is at odd with an export driven economy.
What if the Dollar weren't the world's reserve currency, either due to deliberate policy by the U.S., or the inevitable fact that the U.S. economy will shrink as a share of the world's economy as India and China develop?
raincom
If the USD ceases being the reserve currency, inflation goes up. Fed's neutral rate of interest 2% = the floor of inflation rate. For the third world countries, the natural interest rate = Fed's interest rate (or American inflation rate) + the local inflation rate. That's why third world countries pay more interest rate s in their own currencies; that's why they want to borrow in USD.
CharlieDigital
If I understand this correctly, it would effectively be the same mechanism as carbon offset credits where carbon emitters can purchase credits from entities working to reduce carbon emissions.
I think that there could be some downsides to this because the US exports a lot of agricultural goods which are already subsidized as it is.
nipponese
I see many comments here saying “but stock market went up” while ignoring the bare bone problem Buffett is presenting: Disproportionate foreign ownership of US assets harms American sovereignty.
The issue may be that sovereignty is hard to measure, but I think we have been complaining about the long-tail effects for a while:
- wealth inequality (as businesses become optimized on foreign labor, execs are paid more and workers less)
- job security (volatility for investor class means sudden job cuts or offshoring)
- asset inflation in real estate (no one can afford a freakin house)
- WAR (we have an obligation to defend our debt owners in the Middle East)
Every time the public trust gets violated, we lose a small piece of our future.
tim333
In theory but compared with 2003 when that was written I'd say American sovereignty has increased. In Europe and most places we buy from Amazon, search with Google, the computers run Windows or MacOS, the phones run US software etc. It's more the US owning abroad than abroad owning the US.
null
ComputerGuru
The important part is that this doesn’t seek to force a zero trade deficit on a per-country basis. Imagine insisting Cambodia has to buy as much US goods (taking into account the type of goods the US exports) as US companies import from Cambodian factories.
ein0p
Buffett's suggestion, while elegant, would require that Congress passes legislation on this, which there's zero percent chance that it would, in its present state.
margalabargala
The current state of the government is that Congress has tacitly ceded their power to the President. They are allowing him to do things that generally would not be permitted with out Congressional approval, because the majority is aligned with him anyway.
An intelligent or competent leader who had the power currently enjoyed by the President would be able to implement the system suggested by Buffet, and it would likely see less opposition than the current tariffs have.
matthewdgreen
An intelligent or competent leader probably wouldn’t be in power in a situation like this. This is a situation that arises when the partisans have chosen blind allegiance to a cult of personality over the kind of messy politics you get when you have to try to win the allegiance of a party by proposing policy that a majority can get behind.
ein0p
Actually, no. They haven't "ceded" a damn thing. If they did, the GOP would be working on Trump's legislative agenda, which is something it's been sabotaging again and again in spite of having a slim majority in both the House and the Senate. The plan seems to be: sabotage until midterms, then lose one or both majorities to dems, and raise money off "gracefully losing" for the remaining 2 years of Trump's term. That was the plan 8 years ago, too. It worked.
leereeves
I fear that Congress will be unable to pass anything that isn't a budget resolution for the foreseeable future.
The filibuster rule requires bipartisan agreement to implement any proposed policy, and neither party wants to give an administration from the other party any kind of win.
Perversely, the better the idea, the less likely it is to pass Congress.
Better idea -> it will be successful -> it will be popular -> the administration will benefit politically -> the other party will oppose it -> it won't get 60 votes in the Senate -> it won't become law
matthewdgreen
I see the current situation as essentially the best ad for “Congress” (however slow or ineffectual) that one could write.
rayiner
Over 90% of the trade deficit is attributable to China, the EU, Mexico, Vietnam, Taiwan, Japan, South Korea, and Canada. These are big, diversified economies. Nobody is focused on Cambodia.
mitthrowaway2
Cambodians are, and they were just hit by a 49% tariff, one of the highest applied to anybody.
graemep
Yes, that is stupid. Why not apply that to the big economies that the GP comment said was 90% of the deficit. Exempt small low income countries - save a lot of people a lot of paid at little cost.
On the other hand this is a bargaining tactic. I do not think these tariffs will last.
> Instead, recall that President Trump views tariffs as generating negotiating leverage for making deals. It is easier to imagine that after a series of punitive tariffs, trading partners like Europe and China become more receptive to some manner of currency accord in exchange for a reduction of tariffs
https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...
And look who wrote it
tene80i
What do you mean by “nobody”? The U.S. government has done exactly this to Cambodia. It is stupid, for exactly the reason you say, but it’s also relevant, because it has happened.
leoh
I have a 100% trade deficit with the grocery store and a 100% trade surplus with my employer. Expecting all parties to trade at parity is utterly insane.
null
Luc
Paper with some simulations and a tweaked version of Buffett's idea: https://www.levyinstitute.org/pubs/wp_538.pdf
paxys
Buffett has been aggressive selling stock in the last year ($134 billion total in 2024) and Berkshire is right now sitting on $334 billion cash vs $272 billion in equities. Kinda funny because he's the first one who will tell you "don't time the market", but he definitely timed it to perfection.
"Be fearful when others are greedy and greedy when others are fearful".
mbac32768
> Kinda funny because he's the first one who will tell you "don't time the market", but he definitely timed it to perfection.
I don't know if he's specifically said this but I think a more accurate picture of his view is "unless you're an idiot savant like me whose skill for this would be useless at any other point in history, don't try to time the markets".
wetpaws
[dead]
nipponese
It's not timing.
His principal is simple: Buy priced fairly or underpriced businesses. Sell overpriced businesses.
The not simple part: Using 80 years of business experience to assess strengths and risks to an enterprise, and not FOMOing into something. He would say, he doesn't buy stocks, he buys businesses. How many people buying stocks have even opened a 10K?
One of the few shining examples of investor vs trader mindset.
graeme
Buffett's position is the vast majority of people shouldn't time the market if they aren't full time investors. But that skilled full time investors can beat the market.
See the Superinvestors of Graham Doddville: https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham...
itsthecourier
he says so because he is able to do it with some good degree of accuracy and knows how hard it is
ajmurmann
I'm very pessimistic about the stock market right now but am also very concerned about inflation. The stock will go back up the cash won't. Where am I wrong?
Calwestjobs
so he is sitting on 334 billion?
that is almost Buffets "USA net ownership balance in 1980" - 360 billion. from that 2003 document... ;)
watwut
He is against tariffs in 2025 as executed by Donald Trump, openly.
bongodongobob
Well Trump was favored to win by a decent margin months before the elections and he's doing exactly what he said he'd do. I pulled a lot of money out last fall. This wasn't that hard to predict. The hard part is how far down is the bottom.
BrickFingers
This was a great read.
Can someone explain how this translates for average American citizens? What have been the effects, if any, of consistently trading at a deficit since the 80s?
I've been trying to wrap my head around it, but it seems like there are so many factors at play that the effects aren't obvious.
My intuition is that maintaining trade deficits could cause inflation since US often needs to print money to service its debts. But, that only depends on consistent budget deficits. Inflation also depends on Fed rate somehow...Do consistent deficits increase housing prices? I'm lost..
I hardly know anything about econ. But, my gut feeling is that the effects of 40 years of trade deficits should be clearer than they are. It feels like maybe the status quo has been artificially propped up.
fbn79
Any form of protectionism in the long run affects the efficiency of companies and the quality of products. Even Reagan understood this. The response of nations to US tariffs should be to try to eliminate even more tariffs towards other nations and create new free trade zones.
tim333
While I'm a fan of Buffett, as he himself says macroeconomics isn't his speciality.
One issue with the story is he suggests the people selling America stuff, say China end up accumulating American land and owning the country but it's not what generally happens in practice. In practice foreigners tend to end up either with US dollar debt, which tends to inflate away, or equity in US companies, of which YCombinator and similar churn out hundreds of new ones each year.
Another thing is foreigners may end up buying some US real estate but the likes of Amazon ends up taking over much of the worlds retail industry as local shops close around the globe.
For reasons like this it's probably not worth worrying too much about the deficit and leaving it to market forces to figure out.
margalabargala
Depends what region of the country you are in.
In much of the western US, especially Arizona, there are enormous farms growing water-intensive crops, in particular alfalfa. These farms are owned by assorted entities in the Middle East, and the crops are shipped overseas.
This is an enormous problem. The Colorado River basin is already over-allocated and there is not enough water to go around. But due to how water rights work, any entity can purchase an open-ended amount of our already endangered water supply and do as they please with it.
At this moment it isn't a critical problem, because we do have enough other agriculture and water to support ourselves. But with the direction the climate is heading, eventually we will have a drought of such severity that the water used by those farms makes or breaks us.
During the Great Famine in Ireland, the island consistently produced more than enough food to feed its citizens; it was all simply sent overseas.
BJones12
(2003)
Original discussion
https://news.ycombinator.com/item?id=43579908