The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- Economists expect the Labor Department to report that the economy added 185,000 jobs in April, after adding 194,000 and 216,000 in February and March.
On the positive side, commercial construction should rebound, defense spending will pick up and exports should get a lift from a weaker dollar. The auto sector is exhibiting remarkable strength -- General Motors ( GM)is boosting market share and Ford ( F) technology is commanding premium prices. Overall, economists are expecting growth in the range of 3% to 3.5%, but they had similarly strong expectations about the first quarter in January. However, economists have had difficulties assessing the full consequences of rising gas prices, erosion in market shares from surging Chinese exporters, the budget woes in Washington and the state capitals, and festering sovereign debt problems in Europe. Stay tuned -- weather will be warmer but that is about the only certain forecast for the second quarter.
At 3.3% of GDP, the $500 billion trade deficit is a tax on domestic demand that erases the benefits of tax cuts. Consequently, the U.S. economy is expanding at about 3% a year instead of the 5% pace that is possible after emerging from a deep recession and with such high unemployment. Oil and trade with China account for nearly the entire U.S. trade deficit. The administration is banking on electric cars and alternative technologies, such as wind and solar, to replace imported oil but those won't pull down gasoline consumption enough to reduce the oil import bill for the balance of this decade. Failure to produce more domestic oil and gas, by sending dollars abroad for imports, is a jobs killer. China maintains an undervalued currency by purchasing about $450 billion in foreign currencies each year. This reduces domestic Chinese consumption and subsidizes Chinese exports by about 35%. Failure to offset Chinese currency subsidies, for example by taxing dollar yuan conversions, is the single most significant flaw in the administration's policy to create an adequate numbers of jobs. More broadly, major trading partners in Europe and Asia rely on value-added taxes to finance government and health care, whereas Americans pay higher corporate taxes and directly for health care. Under WTO rules, VATs are rebateable on exports from Europe and Asia and are applied on imports from the United States into those markets, creating huge pricing disadvantages -- American products are essentially taxed twice. A neutral change in U.S. tax policy toward a VAT -- swapping a VAT for reductions in corporate and personal income taxes -- would help remove a major competitive disadvantage on U.S. exporting and import-competing industries. Finally, the 2010 health care law is pushing up health care costs, rather than reducing those as promised, making insurance unaffordable for many small and medium sized businesses. Although manufacturing has enjoyed a stronger recovery than the rest of the economy, it has been significantly focused on activities that use very little labor illustrating the burden that health care imposes on U.S. employers. The recent Standard & Poor's warning that U.S. debt may lose its AAA rating was more than a statement about the political gridlock in budget negotiations. U.S. debt problems will ultimately require more robust growth in employment and tax revenues and require Congress and the President to revamp energy, trade, tax, and health care policy. Without those, the American economy cannot succeed.
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