Sustainable trade is fair for all countries

The United States' trade balance with other nations was negative $517 billion for the last 12 months ending March 2010. Last week, Nobel economics laureate Paul Krugman suggested that retaliation for perceived currency manipulation by China could be a threat to impose a 25 percent import surcharge on Chinese goods.

Before we start a trade war with a future superpower peer, we should re-visit Warren Buffet's 2003 proposal to balance the trade deficit. Simply, every time a company exports $1 of merchandise from the U.S., they receive the right to import $1 of merchandise. We set up an exchange where companies can sell import certificates that they won't use and buy ones they need. Since the deficit is so large, and has built up for so long, such a system would initially shock markets. So the federal government could sell extra import certificates on the market to stabilize prices and purposefully run a declining trade deficit, for example, $400 billion the first year, $300 billion the second, and so on. During this transition period, the program would thus result in some revenue for our government to fund export programs such as ports and export banks.

This system will end our unsustainable trade deficits through a combination of (1) making import certificates too expensive to be worth importing certain cheap goods (2) moving some manufacturing to the U.S. to prevent the need to buy import certificates for goods sold here, or to produce export certificates for goods sold overseas. Such a system is fairer than tariffs, since it doesn't target specific products, industries, or nations. All of our trading partners would be welcome to move production capacity into America, and thus produce import certificates rather than consume them.

There is hope: the Economic Policy Institute is studying the proposal's implementation, and Senators Dorgan and Feingold have in the past introduced a bill before Congress. Of course, concrete proposals like this will bring out all of the reasons we should not do this, and no new system is perfect, so it would need to be adjusted in practice.

The goal, however, must be achieved: over time, the United States should run a neutral trade balance.