When we speak in numbers, the US is facing a total balance of trade deficit of over $ 800 billion in 2007, while 40 years ago in 1967 they had a surplus of $ 2 billion.
But how do the Americans finance this deficit? What impact does it have on the value of the US $? Is it good or bad for them?
The US obviously had to find a way in order to finance this huge deficit. Back in 2006 Warren Buffet came up with the idea of using a tool called Import Certificates as a solution to the problem.
Basically Import Certificates refers to a governmental economic intervention used to fix a country’s trade deficit. Creating a market for import certificates that would represent the right to a certain dollar amount of goods into the US from other countries does this. These certificates would be issued to US exporters in equal amount to the sum of the dollar of the goods they export, and can be sold to importers, who must purchase them in order to be allowed to import goods.
The price of an import certificate is set by free-market forces, and therefore is dependent on the balance between imported and exported goods through supply and demand.
They believe that proceeds from sale of import certificates would encourage exporters, as they’d gain extra-money out of it, while on the other hand importers would be discouraged as they’ll have to pay the additional cost.
Basically it refers to creating tariffs on imports to the US, kept at the exact level in order to promote trade balance.
But this wasn’t the only idea; also Americans tried to push foreigners to invest in American multinationals, going into the stock market or let them take part in the economy of the US of any other way.
Basically it was all about finding foreign countries that are investing in $, and this is exactly what makes this currency so special. It is the only currency that doesn’t have a change in value linked to trade deficit or surplus.
Imports to the US are somehow “free”. While other countries have to find a way in order to refinance themselves, the US has the power of printing money as long as they need more. This is due to the fact that meanwhile they’re paying for their imports, they know that they can spend as much as they want, as the money will return to them.
Obviously they take the risk of loosing people’s confidence in the $, but they are protected from foreigners, such as the EU and China, as they’re aware that if the $ is loosing in value, they all loose.
To conclude, I believe that even though the amount of the US’ trade deficit is incredible, they have enough power, not having to worry about refinancing all their debts.
This is obviously due to the fact that if the US economy is in depression because of its trade deficits, the whole world will be affected, and this is why, the US basically isn’t fighting against it on its own, but has other economic forces behind them, working on the stability of the American economy.
