The US Commerce Department is
expected on Friday to report that the deficit on
international trade in goods and services was
US$47.8 billion in December, unchanged from
November.
This trade deficit is the most
significant barrier to more robust economic growth
and jobs creation - even more formidable than the
federal budget deficit - because its effects are
more enduring.
The pace of economic
recovery has disappointed, because the US economy
suffers from too little demand for what Americans
make. Consumers 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 does not return to purchase US
exports, is lost domestic
demand that could be creating American jobs.
Jobs creation Oil and consumer
goods from China account for virtually the entire
trade gap. The failure of the George W Bush and
Barack Obama administrations to develop and better
use abundant domestic petroleum resources, and
address subsidized Chinese imports, are major
barriers to reducing unemployment.
The
economy added 243,000 jobs in January, whereas,
361,000 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 380,000 per month to
accomplish this goal. Growth in the range of 4% to
5% a year is needed to accomplish that.
Unemployment has fallen, largely because
working-aged adults are dropping out of the labor
pool - they are neither employed, nor seeking
work. Since October 2009, the jobless rate has
fallen from 10% to 8.3%, despite the fact that the
percentage of working-aged adults employed stayed
constant at 58.5%. The percentage of adults
participating in the labor force - the employed
and those unemployed but making some effort to
find work - fell from 65.0% to 63.7%.
Simply, during this recovery, the most
effective jobs creation program has been to
convince more adults that they don't want a job or
it is futile to look for a decent position, and
simply quit looking - that phenomenon has
accounted for 75% of the reduction in the
unemployment rate over the past 27 months.
Just to keep up with productivity growth,
which averages at about 2% a year, and natural
increase in the adult population, which is about
1%, the economy must grow at about 3% a year -
unless more adults quit looking for work
altogether. As stronger growth attracts
immigration and encourages idle adults to reenter
the labor force, growth in the range of 3.5% is
needed to sustain a full-employment economy.
Economic growth The economic
recovery began five months after Obama assumed the
presidency, and GDP growth has averaged a
disappointing 2.4% a year.
This is in
sharp contrast to Ronald Reagan's economic
recovery. Like Obama, he inherited a deeply
troubled economy, implemented radical measures to
reorient the private sector, and accepted large
budget deficits to get their plans in place. As
Reagan campaigned for re-election, his post-Carter
malaise economy grew at a 7.5% rate. That
expansion set the stage for the Great Moderation -
two decades of stable, non-inflationary growth.
Most economists agree, growth is
inadequate because demand is too weak - and the
trade deficit is the culprit.
Consumers
are spending and taking on debt again, but too
many dollars spent by Americans go abroad to
purchase Middle East oil and Chinese consumer
goods that do not return to buy US exports. This
leaves many US businesses with too little demand
to justify new investments and more hiring, too
many Americans jobless and wages stagnant, and
state and municipal governments with chronic
budget woes.
In 2011, consumer spending,
business investment and auto sales added
significantly to demand and growth, and exports
did better too; however, higher prices for oil and
subsidized Chinese manufactures into US markets
pushed up the trade deficit and substantially
offset those positive trends. Now a recession in
Europe, slower growth in Asia, and consumer debt
will curb demand at least into the spring and
summer.
The administration-imposed
regulatory limits on conventional petroleum
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. In addition, faced with
difficulties in its housing and equity markets,
and troubled banks, it is boosting tariffs and
putting up new barriers to the sale of US goods in
the Middle Kingdom.
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. That would neutralize China's
currency subsidies that steal US 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 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 $525 billion
a year 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
US International Trade Commission.
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