The Commerce Department reported the deficit on international trade in goods and services was $45.6 billion in August. The trade gaps with China and on imported oil account for virtually the entire deficit, and the trade deficit is the most significant barrier to jobs creation and growth in the U.S. economy. Administration policies, by failing to address the underlying structural causes of the trade imbalance, slow economic recovery and risk thrusting the economy into second recession, raising unemployment above 15 percent.
Economists agree, the recovery is weak and second recession threatens, because U.S. economy suffers from too little demand for what Americans make. 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 nearly $550 billion annual trade deficit would create at least 5 million jobs.
The failure of both the Bush and Obama administrations to address subsidized Chinese imports and develop abundant domestic oil and gas resources, and are major barriers to pulling down unemployment to acceptable levels.
The economy added only 103,000 jobs in September; whereas, 373,000 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 per month to accomplish this goal.
The China Currency Bill would slap duties on Chinese imports products subsidized by China’s government engineered undervalued currency, raise U.S. production and create jobs in America. If China stopped intervening in currency markets the duties would stop.
Similarly, if the Obama administration and governors stopped blocking the production of domestic oil and gas, new jobs in construction and building materials industry—such as cement and steel—would open up quickly. The initiative would be better than government stimulus spending, because it would raise revenue rather than require Washington to tax and borrow.
The first half of 2011, GDP growth has averaged about 0.8 percent, well below the 3 percent 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 U.S. markets pushed up the trade deficit and offset those positive trends. Now consumer pessimism is pushing down retail sales and home prices, and discouraging new home construction and business investment.
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 U.S. petroleum production by 4 million barrels per 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 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 U.S. multinationals producing in China and large banks seeking business there. American companies like GE, Caterpillar and Goldman Sachs have become dependent on Chinese protectionism and clients of the regime in Beijing. Laughingly, the President’s jobs council, headed by GE Chairman Jeff Immelt, proposes more tax breaks for GE instead of genuine action to foster currency reform.
The House should pass the China Currency Bill that has cleared the Senate, and President Obama should sign it. That would partially neutralize China’s currency subsidies that steal U.S. factories and jobs. It would not be protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it would be self defense.
Peter Morici is a professor at the Smith School of Business, University of Maryland and former chief economist at the U.S. International Trade Commission. Follow him on Twitter@pmorici1.