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Outside View: Trade deficit blocks growth
by Peter Morici
College Park, Md. (UPI) Dec 8, 2011

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The U.S. Commerce Department is expected Friday to report the deficit on international trade in goods and services was $43.4 billion in October, up slightly from $43.1 billion in September.

This trade deficit is the most significant barrier to jobs creation and growth in the U.S. economy -- even more formidable than the federal budget deficit because its effects are more enduring.

Economic recovery is slow, because the U.S. economy suffers from too little demand for what Americans make. Americans are spending again -- the process of winding down consumer debt that followed the Great Recession ended in April. However, every dollar that goes abroad to purchase oil or Chinese consumer goods and doesn't return to purchase U.S. exports, is lost domestic demand that could be creating American jobs.

Jobs creation

Oil and Chinese imports account for virtually the entire trade gap. The failure of the Bush and Obama administrations to develop abundant domestic oil and natural gas resources and address subsidized Chinese imports are major barriers to reducing unemployment.

The U.S. economy added only 120,000 jobs in November; whereas, 369,000 jobs must be added each month for the next 36 months to bring unemployment down to 6 percent. With federal and state government cutting payrolls, the private sector must add about 400,000 jobs per month to accomplish this goal.

Too many dollars spent by Americans go abroad to purchase Middle East oil and Chinese consumer goods that don't return to buy U.S. exports. This leaves U.S. businesses with too little demand to justify new investments and hiring, too many Americans jobless and wages stagnant, and state and municipal governments with chronic budget woes.

Economic growth

Gross domestic product growth is on track to average about 2 percent for 2011 but 3 percent is needed just to keep up with productivity and labor force growth and keep unemployment from rising.

In 2011, consumer spending, business investment and auto sales added significantly to demand and growth and exports have done better, too. However, higher prices for oil and subsidized Chinese manufactures into U.S. markets pushed up the trade deficit and substantially offset those positive trends. Now conditions in Europe and consumer pessimism are again curbing and further discouraging new home construction and resale of existing homes.

Administration-imposed regulatory limits on conventional oil and natural gas development are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, Obama administration energy policies are pushing up the cost of driving, making the United States even more dependent on imported oil and overseas creditors to pay for it and impeding growth and jobs creation.

Oil imports could be cut in half by boosting U.S. petroleum production by 4 million barrels a day and cutting gasoline consumption by 10 percent through better use of conventional internal combustion engines and fleet use of natural gas in major cities.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for U.S. dollars and other currencies in foreign exchange markets.

Presidents George W. Bush and Barack Obama sought to alter Chinese policies through negotiations but Beijing offers only token gestures and cultivates political support among U.S. multinationals producing in China and large banks seeking business there.

The United States should impose a tax on dollar-yuan conversions in an amount equal to China's currency market intervention. That would neutralize China's currency subsidies that steal U.S. factories and jobs. That amount of the tax would be in Beijing's hands -- if it reduced or eliminated currency market intervention, the tax would go down or disappear. The tax wouldn't be protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it would be self defense.

Cutting the trade deficit in half, through domestic energy development and conservation and offsetting Chinese exchange rate subsidies would increase GDP by about $550 billion and create at least 5 million jobs.

(Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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