I have a nightmare.
It's Nov. 8, election night in the United States. Contrary to every current poll, Donald Trump squeaks out a narrow victory. As his fans erupt in manic cheers, he kisses Melania, steps to the podium and peels back his fleshy mask to reveal – the grinning face of Warren Buffett.
It's at this point that I usually jolt awake and come to my senses. Two men could not be more different than the Manhattan goon and the Omaha tycoon, I tell myself.
So what's driving my weird fantasy? Maybe my subconscious takes some odd pleasure in mashing up two aging billionaires known for plain talk, folksy metaphors and, um, unsophisticated tastes.
More likely, though, it's the fact that both men seem fascinated by the U.S. trade deficit, both have ideas designed to cure it – and both are wrong.
Mr. Trump thunders that the way to make America great again is to stack high the tariffs against China and Mexico (and probably Canada, too, given our large amount of exports to the United States). "We have to stop these countries from stealing our companies and our jobs," he blustered in a recent debate.
Mr. Buffett, who is campaigning for Hillary Clinton and has called for Mr. Trump to release his tax returns, does agree with the presidential candidate on one thing: The trade deficit is a big concern. As you might expect, though, Mr. Buffett has a kinder, gentler way of solving the problem.
In an article originally published in 2003 in Fortune magazine, he proposed a system under which the government would issue import certificates (IC) to U.S. exporters in an amount equal to the value of what they shipped abroad. Any foreigner who wanted to sell goods in the United States would have to buy an amount of IC equal to the value of those U.S. sales. The IC requirement would erase the U.S. trade deficit in a single swoop, ensuring that imports and exports are permanently balanced.
"My remedy may sound gimmicky and in truth it is a tariff called by another name," Mr. Buffett wrote. "But … this plan would increase our exports and might well lead to increased overall world trade" without affecting the value of the U.S. dollar.
Mr. Buffett has not substantially changed his opinion. Fortune republished the article this spring, as Mr. Trump and Bernie Sanders took turns whaling on the trade issue. Before the magazine resurfaced the essay, it contacted the Nebraska billionaire, who said he stands by what he wrote, "though the problem has diminished a bit because of the lower price of oil and our country's increased reliance on domestic production."
Give Mr. Buffett points for at least a bit of candour. But his modest step back on the issue falls short of the full-scale retreat he should be making.
Most economists take trade deficits in stride because they assume that such shortfalls are usually self-correcting, through shifts in currency values, buying patterns and productivity.
In fact, that is exactly what is happening in the United States. The country's current account deficit – a broad measure of the country's trade in goods and services – has faded from more than 6 per cent of gross domestic product in 2005 to less than 3 per cent now. The problem is diminishing, as Mr. Buffett acknowledges – and without any intervention.
Would tariffs or elaborate plans for alternative currencies such as IC really help speed this process? More likely they would exacerbate other problems.
A country runs a trade deficit because it can buy goods and services from other countries more cheaply than it can make them itself. Mr. Trump's proposal for a wall of tariffs would cure the trade deficit only by making imports – everything from Apple iPhones to Ford Fiestas – more expensive for all those hard-pressed ordinary Americans he purports to represent.
Mr. Buffett's proposal – a tariff in everything but name, as he admits – would have exactly the same effect.
It's not clear that any benefit from new American jobs would offset the increased cost of imports. Other countries might retaliate by erecting their own barriers to U.S.-made products. Whatever happened, U.S. consumers would wind up paying more for many of their favourite goods.
That would be an odd victory, especially from the perspective of two businessmen who purport to believe in free markets. Both Mr. Buffett and Mr. Trump are essentially arguing for ways to protect uncompetitive U.S. businesses. Make America great again? They want to keep America mediocre.