Import Certificates - Wikipedia, the free encyclopedia
Import Certificates
From Wikipedia, the free encyclopedia
Import Certificates are an idea for governmental economic intervention to fix a country's trade deficit. The idea was first proposed by Warren Buffett. In the United States, the idea was first introduced legislatively in the Balanced Trade Restoration Act of 2006. The proposed legislation was sponsored by Senators Byron Dorgan (ND) and Russell Feingold (WI), two Democrats in the United States senate. Since then there has been no action on the bill.
[edit]Concept
Buffett's plan proposes creating a market for import certificates that would represent the right to import a certain dollar amount of goods into the United States from other countries. These certificates would be issued to US exporters in an amount equal to the dollar amount of the goods they export, and can be sold to importers, who must purchase them in order to legally import goods. The price of an import certificate is set by free-market forces, and therefore ultimately is dependent on the balance between imported and exported goods through supply and demand.
Proceeds from the sale of import certificates would encourage exporters (who would gain that extra money in addition to the proceeds of their exports) and discourage importers (who would need to pay the additional cost to acquire import certificates as well as the cost to acquire the goods they are importing). This system would essentially create a broad-based tariff on imports to the United States.
As a theoretical concept, the idea could apply to other countries besides the United States, but Buffett argues that practical realities make it unlikely to succeed elsewhere. In particular, for any country which maintains a trade surplus the import certificates will be valueless.
[edit]Examples
Suppose that in a given time frame the US exports $1 trillion worth of goods, and importers desire to import $1.5 trillion worth of goods. $1 trillion worth of import certificates will be issued in that time frame, and since $1.5 trillion worth of import certificates are desired by importers, they must compete over the available supply, driving up the price to a point where only $1 trillion of goods are worth importing. Suppose this price is $0.1 for a $1 certificate. In that case, exporters make an additional total of $0.1 trillion by selling their issued import certificates, while the importers who have decided to import despite the additional cost, have to pay an extra $0.1 trillion in total to do so.
Suppose at another time frame the US exports $2 trillion worth of goods, and importers still desire to import only $1.5 trillion worth of goods. In that case there will be more import certificates available than are desired, and the price of a certificate will drop to zero, allowing for completely free trade.
[edit]External links