The US Commerce Department is
expected on Tuesday to report the deficit on
international trade in goods and services was
US$42.7 billion in May, down a bit from $43.7
billion in April. The trade deficit is the most
significant barrier to jobs creation and growth in
the US economy.
Simply, the US economy
suffers from too little demand for what Americans
make, and every dollar that goes abroad to
purchase oil or Chinese consumer goods that does
not return to purchase exports is lost purchasing
power that could be creating jobs. Halving the
$525 billion annual trade deficit would create 5
million jobs.
Jobs creation Oil
and Chinese imports account for virtually the
entire trade deficit. The failure of both the
George W Bush and Barack Obama
administrations to develop
abundant domestic oil and gas resources and to
address subsidized Chinese imports are major
barriers to pulling down unemployment to
acceptable levels.
The economy added only
18,000 jobs in June; however, 382,000 jobs must be
added each month for the next 36 months to bring
unemployment down to 6%. With federal and state
government cutting payrolls, the private sector
must add about 400,000 per month to accomplish
this goal.
Americans are spending again,
but too many dollars go abroad to purchase Middle
East oil and Chinese consumer goods that do not
return to buy US exports. This leaves US
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.
In
June, the private sector added only 57,000 jobs,
and many were in government subsidized health care
and social services. Netting those out, the
private sector jobs created only 35,000 in June -
that comes to 11 non-government subsidized jobs
per city and county.
Economic
growth The first half of 2011, GDP growth
has averaged about 2.2%, well below the 3% needed
just to keep up with productivity and labor force
growth and keep unemployment from rising.
In 2010, consumer spending, business
technology and auto sales added strongly to demand
and growth, and exports have done quite well.
However in 2011, the soaring cost of imported oil
and subsidized Chinese manufactures into US
markets pushed up the trade deficit and offset
those positive trends. Now consumer pessimism is
pushing down home prices and sales again, and car
sales dipped in May and June.
Administration-imposed regulatory limits
on conventional oil and 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, 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 US petroleum
production by 4 million barrels a day, and cutting
gasoline consumption by 10% through better use of
conventional internal combustion engines and fleet
use of natural gas in major cities.
To
keep Chinese products artificially inexpensive on
US store shelves, Beijing undervalues the yuan by
40%. It accomplishes this by printing yuan and
selling those for dollars and other currencies in
foreign exchange markets.
Presidents Bush
and Obama have sought to alter Chinese policies
through negotiations, but Beijing offers only
token gestures and cultivates political support
among US 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 divided by its exports - about
35%. That would neutralize China's currency
subsidies that steal US factories and jobs. It
would not 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 $500 billion and create 5
million jobs.
Peter Morici is a
professor at the Smith School of Business,
University of Maryland School, and former Chief
Economist at the US International Trade
Commission.
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