Thursday, the Commerce Department is expected to report the deficit on international trade in goods and services was $51.7 billion in February, down just slightly from January.
The $620 billion annual trade gap is the most significant barrier to more robust growth and jobs creation, and oil and subsidized imports from China are the culprits.
In March, the economy added 120,000 jobs, but 362,000 jobs must be created each month for three years to lower unemployment to 6 percent.
Unemployment is down to 8.2 percent from 10 percent in October 2009, largely because working aged adults are dropping out of the labor market—they are neither employed, nor seeking work.
The most effective jobs creation program has been to convince more adults that they don’t want a job or it’s futile to seek a decent position—that phenomenon has accounted for more than 80 percent of the reduction in the unemployment rate.
Just to keep up with productivity and population growth, which average about 2 and 1 percent a year respectively, the economy must grow 3 percent a year—unless, of course, even more adults become discouraged and quit looking for work.
The economic recovery began five months after Mr. Obama assumed the presidency, and GDP growth has averaged a disappointing 2.4 percent a year.
Ronald Reagan, like Mr. Obama, inherited a deeply troubled economy, implemented radical measures to reorient the private sector, and accepted large budget deficits to get his plans in place. As Mr. Reagan campaigned for reelection, his post-Carter malaise economy grew at a 7.1 percent rate. That expansion set the stage for two decades of stable, non-inflationary growth.
Most economists agree, growth is inadequate because of too little demand for what Americans make. The trade deficitis the culprit.
Consumers are spending and taking on debt again, but too many dollars are spent on Middle East oil and Chinese consumer goods that do not return to purchase U.S. exports. This leaves many U.S. businesses with too little demand to justify new hiring, too many Americans jobless and wages stagnant.
Limits on drilling for oil in the Eastern Gulf, off the Pacific and Atlantic Coasts, and much of Alaska are premised on false hopes 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 impeding growth and jobs creation.
Oil imports could be cut by two-thirds by boosting U.S. oil production to 10 million barrels, more aggressive use of natural gas in fleet vehicles and for home heating, and better use of conventional internal combustion engines.
To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent—it prints yuan and sells those for dollars and other currencies in foreign exchange markets to keep Chinese exports cheap. In addition, it pirates U.S. technology, subsidizes exports through cheap credit from state banks, and blocks U.S. products from entering the Middle Kingdom with high tariffs and other regulatory barriers.
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 manufacturing in China and large banks seeking business there.
At minimum, the United States should impose a tax on dollar-yuan conversion in an amount equal to China’s currency market intervention. That would neutralize China’s currency subsidies. The 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 China’s aggressive mercantilism, it would be self defense.
Cutting the trade deficit in half, through domestic energy development and conservation, and taxing Chinese exchange rate subsidies would increase GDP by about $500 billion a year and create at least 5 million jobs.
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.