Morici: Obama Appeasement of China, Japan Wrecking Recovery

NEW YORK ( TheStreet) -- The Commerce Department reported the May deficit on international trade in goods and services jumped to $45.0 billion from billion $40.1 billion in April. Overall, the deficit is up from $25 billion when the economic recovery began in mid-2009, and poses the most significant barrier to stronger economic growth.

Household spending has recovered but too many of those dollars still go to pay for imported oil and consumer goods from China and cars from Japan. While consumer spending is up 16%, the trade gap has jumped more than 35%.

Consequently, businesses remain pessimistic about demand in the U.S. market and are reluctant to invest. With the majority of U.S. businesses subject to higher personal, as opposed to corporate rates, more onerous and costly regulations and paying more for employee health care, they remain reluctant to hire and continue to offshore jobs.

Sequestration only subtracted about $42 billion from actual government spending this fiscal year, and its impact pales by comparison to the $240 billion increase in the annual trade deficit and the $150 billion January tax jolt.

Fracking in the Lower 48 has not delivered enough new oil, and a full push on U.S. potential in the Gulf, off the Atlantic and Pacific Coasts and in Alaska could cut import dependence in half. Shifting federal subsidies from electric cars, wind and solar to more fuel efficient internal combustion engines, plug-in hybrid vehicles and liquefied natural gas in rail and trucking could slice imports by another 25%.

Lower natural gas prices substantially improve the international competitiveness of industries like petrochemicals, fertilizers, plastics, and primary metals. However, the Department of Energy's push to boost liquefied gas exports will handicap growth and create millions fewer jobs than keeping the gas at home for manufacturing and alternatives to diesel in transportation.

China systematically undervalues its currency against the dollar to keep its goods cheap in the United States. China steals technology, subsidizes exports and imposes high tariffs on imports, while effectively distracting the Obama Administration from these commercial issues with persistent intransience on cyber-security and passive resistance on nuclear issues with North Korea.

Other Asia governments, most recently Japan, have adopted similar currency strategies to boost exports. For example, the jump in the value of the dollar against the yen gives Toyota ( TM) at least a $2,000 advantage pricing of the Camry against the Ford ( F) Fusion. That may not show up in the list price but it gives Toyota's importing arm in the United States the latitude to pack cars with better features and more aggressively discount.

Economists across the ideological and political spectrum have offered strategies to combat predatory currency policy and force China and others to abandon mercantilism. However, China, Japan and others, offering only token gestures and deflecting rhetoric, exploit President Obama's weakness on economic issues -- the Obama policy of appeasement handicaps the U.S. recovery.

Cutting the annual trade deficit by $300 billion, through domestic energy development and conservation, and forcing China and others' hands on protectionism would increase GDP by about $500 billion a year and create about 5 million jobs.

Cutting the trade deficit in half would raise long-term U.S. economic growth by one to two percentage points a year. But for the trade deficits of the Bush and Obama years, U.S. GDP would be 10% to 20% greater than today, and unemployment and budget deficits not much of a problem.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written 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.