In 2003, Warren Buffett published a piece in Fortune that few in power seemed eager to remember. His concern was structural, not cyclical: the U.S. trade deficit, and the silent liquidation of national wealth it entailed.
Buffett didn’t use complex econometrics or diplomatic euphemisms. He used islands. In his now-famous allegory, two fictional economies—Thriftville and Squanderville—mirror the consequences of trade imbalance. One saves and produces; the other borrows and consumes. Eventually, the saver owns the land, labor, and future of the spender.
“In effect, Squanderville has been colonized by purchase rather than conquest.”
This, Buffett argued, was the trajectory of the United States—at the time bleeding 4% of GDP through annual trade deficits. Today that figure is higher, the financial instruments more complex, but the logic remains identical.
The Proposal That Never Got a Hearing
Buffett’s solution was unorthodox: Import Certificates (ICs). For every dollar of exports, a U.S. company would receive a matching certificate, which importers would then be required to purchase to bring goods into the country.
“This plan would increase our exports… and balance our books without there being a significant decline in the value of the dollar.”
Think of it as a market-based tariff—neutral to sectors, blind to origin, and self-limiting. It doesn’t punish China or Mexico; it punishes imbalance. As ICs become more available through increased exports, their cost drops, and trade naturally normalizes.
But no administration—Republican or Democrat—picked it up. Why? Because, as Buffett wrote, “there is no free lunch in the IC plan.” Imported goods would get more expensive. Consumers would feel it. And politicians prefer inflation through the backdoor to any honest, visible correction.
Net Worth, Net Gone
In 2003, Buffett warned that foreign ownership of U.S. assets already outpaced American ownership abroad by $2.5 trillion. That number has since ballooned. The United States, he said, was acting like a “rich family that possesses an immense farm,” selling off parcels to finance everyday consumption.
“We have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.”
Unlike other debtor nations, the U.S. gets a pass—thanks to the dollar’s reserve status. But even that comes with limits. “Our national credit card allows us to charge truly breathtaking amounts,” Buffett wrote, “but that card’s credit line is not limitless.”
Echoes in Modern Policy
While Buffett’s plan gathered dust, another similar mechanism gained traction: carbon credits. The logic is familiar—if you want to pollute, you pay. Externalities must be priced. Yet when it comes to trade, a similar logic remains taboo. Exporters are unsupported, importers remain subsidized by silence.
ICs wouldn’t be simple to administer in today’s labyrinthine global supply chains. Tracking origin, enforcing compliance, and preventing speculative manipulation would require a bureaucratic overhaul. But complexity isn’t an excuse for inertia. The current model—trade imbalance without brakes—is not just unsustainable, it’s structurally suicidal.
“If something cannot go on forever, it will stop.” —Herb Stein, quoted by Buffett.
A Nation for Sale, or for Strategy?
Buffett closed his article with a warning—not of collapse, but of erosion. Slow, quiet, and mathematically inevitable. At current rates, foreign entities could purchase 4% of all publicly traded U.S. stocks annually—just by reinvesting the dollars they earn from trade. There’s no need for a fire sale. The auction is already underway.
Sources:
Buffett, Warren E. America’s Growing Trade Deficit Is Selling the Nation Out From Under Us, Fortune, Nov. 2003.