Slash Trade Deficit to Create 5 Million Jobs

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) -- Thursday, the Commerce Department is expected to report the deficit on international trade in goods and services was $51.7 billion in February, down just slightly from January.

The $620 billion annual trade gap is the most significant barrier to more robust growth and jobs creation, and oil and subsidized imports from China are the culprits.

Jobs Creation

In March, the economy added 120,000 jobs, but 362,000 jobs must be created each month for three years to lower unemployment to 6%.

Unemployment is down to 8.2% from 10% in October 2009, largely because working aged adults are dropping out of the labor market -- they are neither employed, nor seeking work.

The most effective jobs creation program has been to convince more adults that they don't want a job or it's futile to seek a decent position -- that phenomenon has accounted for more than 80% of the reduction in the unemployment rate.

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Just to keep up with productivity and population growth, which average about 2% and 1% a year respectively, the economy must grow 3% a year -- unless, of course, even more adults become discouraged and quit looking for work.

Economic Growth

The economic recovery began five months after Barack Obama assumed the presidency, and GDP growth has averaged a disappointing 2.4% a year.

Ronald Reagan, like President Obama, inherited a deeply troubled economy, implemented radical measures to reorient the private sector, and accepted large budget deficits to get his plans in place. As Mr. Reagan campaigned for reelection, his post-Carter malaise economy grew at a 7.1% rate. That expansion set the stage for two decades of stable, noninflationary growth.

Most economists agree, growth is inadequate because of too little demand for what Americans make. The trade deficit is the culprit.

Consumers are spending and taking on debt again, but too many dollars are spent on Middle East oil and Chinese consumer goods that do not return to purchase U.S. exports. This leaves many U.S. businesses with too little demand to justify new hiring, too many Americans jobless and wages stagnant.

Limits on drilling for oil in the Eastern Gulf, off the Pacific and Atlantic Coasts, and much of Alaska are premised on false hopes about the immediate potential of electric cars and alternative energy sources, such as solar panels and windmills. In combination, administration energy policies are pushing up the cost of driving, making the U.S. even more dependent on imported oil, and impeding growth and jobs creation.

Oil imports could be cut by two-thirds by boosting U.S. oil production to 10 million barrels, more aggressive use of natural gas in fleet vehicles and for home heating, and better use of conventional internal combustion engines.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40% -- it prints yuan and sells those for dollars and other currencies in foreign exchange markets to keep Chinese exports cheap. In addition, it pirates U.S. technology, subsidizes exports through cheap credit from state banks and blocks U.S. products from entering the Middle Kingdom with high tariffs and other regulatory barriers.

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 manufacturing in China and large banks seeking business there.

At minimum, the U.S. should impose a tax on dollar-yuan conversion in an amount equal to China's currency market intervention. That would neutralize China's currency subsidies. The amount of the tax would be in Beijing's hands -- if it reduced or eliminated currency market intervention, the tax would go down or disappear. The tax would not be protectionism; rather, in the face of China's aggressive mercantilism, it would be self-defense.

Cutting the trade deficit in half, through domestic energy development and conservation, and taxing Chinese exchange rate subsidies would increase GDP by about $500 billion a year and create at least 5 million jobs.
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.