The Trade Deficit Stifles Growth
To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40%. It pirates U.S. technology, subsidizes exports and imposes high tariffs on imports.
President Reagan was a forceful advocate for U.S. economic interests with the preeminent rivals of his day, such as Japan. Whereas President Obama, like President George W. Bush, has sought to alter Chinese policies through endless negotiations.
Beijing offers token gestures, knowing President Obama will not take the strong actions advocated by economists across the ideological and political spectrum to force China to abandon its mercantilists policies. It successfully cultivates political support for the Bush-Obama policy of appeasement among large U.S. multinationals and banks doing business and profiting from mercantilism in the Middle Kingdom.
Cutting the trade deficit in half through domestic energy development and conservation, and forcing China's hand on currency manipulation and other protectionist practices, would increase GDP by about $500 billion a year and create at least 5 million jobs.Longer term, large trade deficits shift resources from manufacturing and service activities that compete in global markets to domestically focused industries. The former undertake much more R&D and investments in human capital. Cutting the trade deficit in half would raise U.S. economic growth by one to two percentage points. But for the trade deficits of the Bush and Obama years, U.S. GDP would be 10% to 20% greater than it is today, per capital income as much as five to ten thousand dollars higher, and unemployment not much of a problem. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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