Huge Jobs Killer: $45.6 Billion Trade Deficit

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) -- The Commerce Department reported the deficit on international trade in goods and services was $45.6 billion in August. The trade gaps with China and on imported oil account for virtually the entire deficit, and the trade deficit is the most significant barrier to jobs creation and growth in the U.S. economy. Administration policies -- by failing to address the underlying structural causes of the trade imbalance -- slow economic recovery and risk thrusting the economy into second recession, raising unemployment above 15%.

Economists agree, the recovery is weak and a second recession threatens, because the U.S. economy suffers from too little demand for what Americans make. Every dollar that goes abroad to purchase oil or Chinese consumer goods that does not return to purchase exports is lost purchasing power that could be creating jobs. Halving the nearly $550 billion annual trade deficit would create at least 5 million jobs.

Jobs Creation

The failure of both the Bush and Obama Administrations to address subsidized Chinese imports and develop abundant domestic oil and gas resources, are major barriers to pulling down unemployment to acceptable levels.

The economy added only 103,000 jobs in September; whereas, 373,000 jobs must be added each month for the next 36 months to bring unemployment down to 6%. With federal and state government cutting payrolls, the private sector must add about 400,000 per month to accomplish this goal.

The China Currency Bill would slap duties on Chinese imports products subsidized by China's government-engineered undervalued currency, raise U.S. production and create jobs in America. If China stopped intervening in currency markets, the duties would stop.

Similarly, if the Obama Administration and governors stopped blocking the production of domestic oil and gas, new jobs in construction and building materials industry -- such as cement and steel -- would open up quickly. The initiative would be better than government stimulus spending, because it would raise revenue rather than require Washington to tax and borrow.

Economic Growth

The first half of 2011, GDP growth has averaged about 0.8%, well below the 3% needed just to keep up with productivity and labor force growth and keep unemployment from rising.

In 2010, consumer spending, business technology and auto sales added strongly to demand and growth, and exports have done quite well. However, in 2011, the soaring cost of imported oil and subsidized Chinese manufactures into U.S. markets pushed up the trade deficit and offset those positive trends. Now consumer pessimism is pushing down retail sales and home prices, and discouraging new home construction and business investment.

Administration-imposed regulatory limits on conventional oil and gas development are premised on false assumptions about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, the administration's energy policies are pushing up the cost of driving, making the United States even more dependent on imported oil and overseas creditors to pay for it. This is impeding growth and jobs creation.

Oil imports could be cut in half by boosting U.S. petroleum production by 4 million barrels per day, and cutting gasoline consumption by 10% through better use of conventional internal combustion engines and fleet use of natural gas in major cities.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40%. It accomplishes this by printing yuan and selling those for dollars and other currencies in foreign exchange markets.

Presidents Bush and Obama have sought to alter Chinese policies through negotiations, but Beijing offers only token gestures and cultivates political support among U.S. multinationals producing in China and large banks seeking business there.

American companies like GE, Caterpillar and Goldman Sachs have become dependent on Chinese protectionism and clients of the regime in Beijing. Laughingly, the president's jobs council, headed by GE Chairman Jeff Immelt, proposes more tax breaks for GE instead of genuine action to foster currency reform.

The House should pass the China Currency Bill that has cleared the Senate, and President Obama should sign it. That would partially neutralize China's currency subsidies that steal U.S. factories and jobs. It would not be protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it would be self defense.

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.

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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.