Warren Buffett reveals his investment strategy and mastering the market (PART 5).

ANDY SEWER: Have you talked to Elon ever?

WARREN BUFFETT: He joined the Giving Pledge, so once or twice, but that's a lot of years ago, seven or eight years ago. He hasn't come to our annual gathering, so I haven't seen him for seven or eight years.

ANDY SEWER: So let's talk about this trade war that's been going on a little bit with China. And, I guess, I'd like to ask you, do you think that Donald Trump was right in calling out the Chinese government and, basically, putting them on notice?

WARREN BUFFETT: I won't have any comment on that. In terms of political activity, I don't put my citizenship in a blind trust. So when the election comes around, I'll do something.

On the other hand, people will interpret things I say about any president as, to some extent, coming from Berkshire. And they and they don't come from Berkshire. I'm just an individual. I'd be glad to talk about China, but I can't talk to you about that part of it.

ANDY SEWER: Fair enough. I mean, do you think there was room for improvement, then, in terms of the trade relationship between China and the United States?

WARREN BUFFETT: Well, I think that China and the United States absolutely are destined to be the superpowers beyond my great-grandchildren lives and will always be competitors and will be competitors in business. We'll be competitors in ideas, all kinds of ways.

There's no other way it would be, and we just have to make sure that competition doesn't get us to a point where we don't realize that the best world is one in which both the United States and China prosper. We do not want to have an island of prosperity and the rest of the world envious of us in a nuclear age. And China doesn't. Russia doesn't.

I mean, we all recognize the dangers of letting competition get out of control. You can be competitors without being enemies. And that's what all powerful nations have to realize over time. It's different than 200 years ago when you could have some dominant country, and then they may have done some things that you didn't like. But it didn't threaten the existence of the world.

You really threatened the existence of the world as we know it if important countries do not constantly recognize that they can compete, they can fight over certain things, but they can't regard it as, essentially, the equivalent of war.

ANDY SEWER: Here's a question from Kevin Chen, who is a Berkshire shareholder and an NYU professor. And he says-- and this is sort of along the lines of what you were just saying, Warren-- but do you think the US and China will be able to resolve their differences or are conflicts unavoidable?

WARREN BUFFETT: Well, I don't think conflicts are unavoidable. But I think it has to be active thinking on the part of every hugely-powerful country. Russia is hugely-powerful. I mean, 90% of the nuclear arms in the world are between US and Russia.

They have to recognize that the best world for them is one where they don't try and grab all the apples, basically, and we have to recognize that. And we can't-- the United States-- we can't think that either our ideas run the world, or we start getting aggressive about things. And China can't think that. Russia can't think that.

That's obvious. You've got to be sure things don't escalate. We had World War I with an Archduke. You can get chance incidents. I asked one of the presidents one time in terms of what he would do if awakened in the middle of the night with somebody coming to him and saying, absolutely somebody else has launched. Would you launch on that? And you've got 10 minutes to decide. I wouldn't want to have that responsibility. But you want to make sure you don't get to that point.

ANDY SEWER: Right. Right. Would you ever make a big acquisition in China. And if not, aren't you missing a huge portion of--

WARREN BUFFETT: Yeah, the answer is, we would. We would.

ANDY SEWER: Have you looked?

WARREN BUFFETT: We've been made aware of some things, yeah.

ANDY SEWER: On the flip side of the coin, are you concerned that the rule of law is different, that the accounting might be opaque?

WARREN BUFFETT: Well, I'd want to be sure I understood the accounting, obviously. In some businesses, that'd be easier to do than others. But I know the laws, the customs, the accounting, the people better in the United States than any place else. So there's some small hurdle in many countries to get over, which I can get over, but it's just not as easy as looking at something where I already know the answer from previous transactions or something of the sort.

So it it's easier to make a big acquisition in the United States. I'd have to do more work if I'm looking beyond the borders. But I love the idea of doing it. When we made the acquisition in Israel a dozen years ago, I didn't know what the tax rates were there. I didn't know what corporate law. I suspected that it would all be answered satisfactorily, which it was. But I didn't just automatically know it.

ANDY SEWER: It seems like you're more open about doing a deal in China than in previous conversations.

WARREN BUFFETT: I don't think so.

ANDY SEWER: No?

WARREN BUFFETT: No.

ANDY SEWER: It's out there.

WARREN BUFFETT: I'm open. Yeah. We made two decent-sized stock acquisitions there, and that worked out fine.

ANDY SEWER: Those are?

WARREN BUFFETT: Well, PetroChina and DYD.

ANDY SEWER: DYD, yeah.

WARREN BUFFETT: DYD was Charlie's. But Charlie's very well-versed on China.

ANDY SEWER: Right. The US trade deficit has been widening and, of course, a lot of that has to do with our trade with China. Is that something that worries you?

WARREN BUFFETT: Well, I wrote an article about it for "Fortune" and the trade situation many years ago and when our deficit got to be large in relation to GDP. I don't think it's essential to have a trade balance. But I think that, if a trade deficit gets large, and it looks like you have no way out from it, that can be a real problem over time.

You're shipping little pieces of paper to the rest of the world, and they're shipping you goods. People are working making underwear or shoes someplace, and they get little pieces of paper from us. And it gets very tempting, if you've done that enough, to make sure that those little pieces of paper aren't worth very much over time when they want to cash them for something.

We don't have any problem running trade deficits. But if we ran really large ones, and we sort of worked ourselves into a box, where we didn't really have a solution to get those numbers down, it could be a problem. And I wrote about it one time. It's kind of a nice thing, actually. Wouldn't you like to have something where you just send out little pieces of paper, and somebody could supply you with their food?

ANDY SEWER: I'm living it.

WARREN BUFFETT: Right.

ANDY SEWER: Exactly.

WARREN BUFFETT: We call them credit cards.

ANDY SEWER: Exactly. Yes. OK, and last question. China is facing its slowest growth in nearly three decades. The leadership there lowered the targets, I think, to around 6.5%, 6%. Are you concerned about this slowing growth and the impact on global markets?

WARREN BUFFETT: Well, I don't worry about it in terms of global markets. China is going to grow a lot over time. When you think of what's happened-- was it in 1949-- but there's been nothing really like it. You had 20% of the world's population at that time perhaps, and it really hadn't remotely achieved their potential.

They had intellectual capacity. They had decent soil, all kinds of things. And what's happened there is almost beyond belief. And that game's not over, but we've had incredible developments in the United States. Real GDP per capita is six times what it was the day I was born in the United States-- six times. And we thought we were a pretty evolved country then and everything.

My parents wouldn't have believe it. They would have thought, this kid has really got it made being born in the United States. And it was true. We had this tailwind, and China's had a hurricane behind it in recent decades.

ANDY SEWER: In a good way.

WARREN BUFFETT: Absolutely.

ANDY SEWER: Because you were comparing it to the tailwind of the hurricane at their back.

WARREN BUFFETT: Yeah, at their back. And they have found a way of life that is dramatically different than existed for the billion. There was a billion then, maybe a billion, two, or three, whatever it is now. They have changed a country, really, of size that, I don't think, there's ever been anything like it.

We've done it, too, but it took somewhat longer. It was more stretched out. It was a remarkable period, but when you go to-- I first went there in 1995. And then, they regarded it as a miracle. Then I went back 10 years later, and it was a whole different country beyond that.

ANDY SEWER: Warren Buffett, thanks so much for joining us. I'm Andy Serwer. You've been watching "Influencers." We'll see you next time.