Collection: Warren Buffett - #231 'Trade Deficit'


Video Link: https://youtu.be/qwk8VIZ_EDU


In this episode, Warren Buffett was asked does he feel that U.S. trade deficit with other countries is of concern to him?


In this episode, you’ll learn:

  • What is trade deficit?

  • Warren Buffett's thought on trade deficit.

To check out all Collection: Warren Buffett <click here>

[Transcript]

(Source: https://buffett.cnbc.com/2001-berkshire-hathaway-annual-meeting/)

~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

WARREN BUFFETT 00:00

And the second question about the trade deficit, that’s a very interesting thing. Because when you run a trade deficit, what you’re doing is you’re trading assets of one sort or another for goods, beyond what you’re sending abroad.


So in effect, you are selling off a tiny bit of the farm so that the country can consume more than it’s producing. If you run a net trade deficit, the country, in aggregate, is consuming less than — or consuming more — than it’s producing.


And if you’re a very rich country, you can’t even see it because if you run a trade deficit of a few hundred billion dollars, you know, compared to an economy that’s maybe worth, what, 40 trillion or something like that, you don’t see it.


But you’re trading off a tiny bit of the farm every year to live a little bit better than if you just lived off the produce of the farm that year.


And you can do it with IOUs if you’ve got a good record. You can’t do it with IOUs if you’re a country that’s got a terrible record.


So they have to denominate their debt in dollars. And, of course, they don’t have the ability to denominate a lot of dollars, and people don’t want to accept a weak currency. So a weak country can’t get away with doing that, unless it’s getting special-type loans from agencies set up to do that.


We can do almost anything we want in this country, because we don’t confiscate property and we don’t — we haven’t destroyed a currency that the people have accepted, in terms of payment for their goods, over the years.


But I basically think a significant trade deficit over a long enough time is a significant minus for the country. You won’t see it though, day-by-day, or week-by-week, or month-by-month.


But eventually, if you trade for trinkets or whatever you’re getting beyond what you’re sending, and you trade away your assets —


Fortunately, some of the assets we traded not that many years ago, like movie studios and some of those things, the other people got the short end of the bargain on.


But by and large, it’s not a good policy for the country to run large trade deficits year after year.


Charlie?


CHARLIE MUNGER 02:13

Well, it’s — that’s certainly true if what you’re trading for is trinkets, or consumer goods, or something. But, of course, a developing country that ran a trade deficit to put in power plants and what have, that might be a very smart thing to do. In fact, the United States once did that.


WARREN BUFFETT 02:28

Yeah, we did it with railroads in a huge way, you know, and —


CHARLIE MUNGER 02:32

But under modern conditions, do we look like a twosome that would love a big trade deficit? (Laughter)


WARREN BUFFETT 02:40

It’s one thing to build railroads with the process, but it’s another thing, you know, to buy radios and television sets. I mean, it depends what you’re getting.


But by and large, we run a trade deficit on consumption goods. And that’s not a big plus over time. Area 2.

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