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Rising Trade Deficit Slows Jobs Recovery

Fourth-quarter exports got a boost from a weaker dollar against the euro earlier in 2010 -- the export effect of a weaker or stronger dollar occurs with a lag of several months; however, this situation is likely to reverse in the 2011, owing in particular to Europe's continuing sovereign debt woes. November will likely prove to be the low point for the trade deficit, as imports of oil and consumer goods from China overwhelm any further progress in U.S. export growth.

Oil and goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces large trade deficits and unacceptably high unemployment indefinitely.

The de facto moratorium on new offshore drilling permits in the gulf, imposed by onerous licensing requirements, and policies that limit development of other conventional energy supplies are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills.

In combination, limits on conventional energy development and excessive optimism about alternative energy technologies are making the United States even more dependent on imported oil and more indebted to China and other overseas creditors to pay for it.

Led by Ford (F - Get Report) and General Motors (GM - Get Report), the automobile industry is demonstrating it can build many more attractive and efficient gasoline-powered vehicles than it is selling now, and a national policy to accelerate fleet replacement would spur growth and create jobs much more rapidly than investments in battery and electric technologies.

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 other currencies in foreign exchange markets. Annually, those purchases exceed $450 billion or 10 about percent of China's GDP and 35 percent of its exports.

President Obama has pleaded with China to stop manipulating its currency, but Beijing shrewdly recognizes Obama lacks the will to meaningfully counter Chinese mercantilism with strong, effective actions. Hence, Beijing offers token gestures and cultivates political support among U.S. businesses like Caterpillar (CAT - Get Report), which outsources jobs to China and profits from Chinese protectionism at the expense of American workers.
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SYM TRADE IT LAST %CHG
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F $14.94 0.74%
GM $31.52 0.03%
AAPL $118.29 -2.50%
FB $93.75 -0.28%

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