NEW YORK ( TheStreet) -- The economy added 103,000 jobs in December. Unemployment fell to 9.4%, largely because 260,000 adults dropped out of the labor force and are no longer counted as unemployed by the government. The president's $800 billion stimulus package gave the economy a lift and additional tax cuts in 2011 will help too, but those didn't address structural problems holding back jobs creation -- principal among those is the huge trade deficit. Since July 2009, spending by consumers, businesses, and federal and state governments has increased at a 3.8% annual pace, but imports and the trade deficit have jumped 17% and 37%, respectively. Simply, too many stimulus dollars are being spent on goods from China, and too few of those dollars return to purchase U.S. exports. The growing trade deficit is a tax on domestic demand that offsets much of the benefits of stimulus spending and tax cuts. Consequently, the U.S. economy is expanding at a 2.9% annual pace, which is not enough to dent unemployment. Since December 2009, the private sector has added 112,000 jobs a month, but most of those have been in government subsidized health care and social services, and temporary business services. Netting those out, core private-sector jobs creation has been a paltry 58,000 a month -- that comes to 18 per county as compared to more than 5,000 jobseekers per county. Coming out of a recession, temporary jobs appear first, but 18 months into the expansion the pace of permanent, non-government subsidized jobs creation should be accelerating. Instead, core private-sector jobs rose only 60,000 in December -- the same as the monthly pace for 2010, and only about one-sixth of what is needed to get unemployment down to 6% by the end of 2013. By the end of 2013, about 13 million private-sector jobs must be added to bring unemployment down to 6%, and current policies are not creating conditions for businesses to hire 350,000 workers each month. The president and the new Republican majority in the House agree the budget deficit must be slashed, but whether accomplished through higher taxes or less spending a significantly smaller budget deficit will reduce domestic demand, kill the economic recovery and push unemployment well above 10% unless the trade deficit is slashed by a like amount.
Beijing's intervention in currency markets and undervalued yuan creates a 35% subsidy on Chinese exports into the U.S. market. Together with high tariffs and other barriers to U.S. sales in the Middle Kingdom, the undervalued yuan is responsible for about half the U.S. trade deficit and high unemployment in the United States. Diplomacy has failed to end China's currency market intervention and aggressive mercantilism, and more assertive action toward China protectionism is needed to bring down the trade deficit while reducing the federal budget deficit. Imposing a tax on the conversion of U.S. dollars into yuan in proportion to Beijing's currency market intervention -- either for the purpose of importing Chinese products or investing in China -- would offset the effects of China's currency market intervention on the U.S. economy. Such a tax would significantly rebalance trade, instigate more investment and jobs creation in the United States, and reduce federal and state budget shortfalls by increasing gross domestic product and tax receipts. Whatever the merits of free trade internationally and laissez faire domestically, trade with China is hardly free now. Chinese mercantilism and a U.S. government that has not answered it are victimizing too many unemployed Americans. Imposing such a tax is a tough choice for a president who views himself a liberal internationalist, and for Republicans in Congress who view themselves as champions of free markets, but these are extraordinary times. America needs pragmatic leadership, not blind allegiance to lofty principles, textbook theories and ideology. We must address the world as we find it, not as we believe it should be.