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News : US Economy Last Updated: May 9, 2012 - 9:18 AM


Dr. Peter Morici: Fix the US Trade Deficit to end jobs drought
By Professor Peter Morici
May 9, 2012 - 8:14 AM

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Dr. Peter Morici: On Thursday, the Commerce Department is expected to report the deficit on international trade in goods and services was $49.5bn in March, up from 46.0bn a month earlier.

The $600bn annual deficit is the most significant barrier to achieving a robust economic recovery and creating jobs, and oil and consumer goods from China account for virtually the entire problem. Economists agree the pace of economic recovery has been too slow, because of too little demand for what Americans make.  

Consumers are spending again—the process of winding down household debt that followed the Great Recession ended more than a year ago; however, too many consumer dollars go abroad to purchase Middle East oil and Chinese consumer goods, but do not return to buy U.S. exports. Consequently, businesses can’t justify expanding U.S. facilities and hiring workers.

Since the economic recovery began in June 2009, the trade deficit has doubled and GDP growth has averaged a disappointing 2.4% a year. Unemployment has fallen from 10 to 8.1% mostly because Americans have quit looking for work, not found jobs.

Like Mr. Obama, Ronald Reagan inherited a deeply troubled economy. He too implemented radical measures to reorient the private sector, and accepted large budget deficits to buy time for his measures to work. As Mr. Reagan campaigned for reelection, his recovery posted a 7.1% growth rate and unemployment fell much more rapidly than it has during the Obama recovery, even as more adults joined the labor force and looked for work.

Obama Administration 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. And those make 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% 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, China undervalues the yuan by 40%. Faced with mounting difficulties in its real estate market and banks, Beijing is boosting tariffs and putting up new barriers to the sale of U.S. goods in the Middle Kingdom.

President Obama has 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 until China revalues its currency. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. The duration of that tax would be in Beijing’s hands—revalue the yuan and the tax ends. Such a policy would not be protectionism; rather, in the face of virulent Chinese 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 $525bn a year and create at least 5 million jobs.

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

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