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TheStreet Open House

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.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.
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