Trade Deficit Drags on Recovery
Imported oil and subsidized imports from China account for the entire trade gap.
Development of new onshore reserves 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 U.S. imports in half. Shifting federal subsidies from cost-ineffective electric cars, wind and solar to more fuel-efficient internal combustion engines and plug-in hybrids could further cut U.S. petroleum imports.
The surge in natural gas production, and accompanying lower prices, substantially improves the international competitiveness of industries like petrochemicals, fertilizer, plastics, and primary metals. However, the Department of Energy is reviewing licenses to boost exports of liquefied gas -- a costly and environmentally risky process -- beyond what is required by statute. That would reduce the trade deficit, create many fewer jobs and spur growth less than keeping the gas at home to boost energy-intensive industries and alternatives to gasoline in transportation.
To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan through official intervention in currency markets and actions of state-owned banks, which often evade calibration in their scope. China extorts U.S. firms to transfer manufacturing technology, subsidizes exports and imposes high tariffs on imports. Other Asian governments, most recently Japan, have adopted similar exchange policies to stay competitive with the Middle Kingdom.
Economists across the ideological and political spectrum have offered strategies to offset the deleterious consequences of currency strategies on the U.S. economy and force China and others to abandon mercantilist policies. However, China offers token gestures, and sadly the Treasury accepts these instead of even acknowledging Beijing's cynical strategy.
Cutting the trade deficit by $300 billion, through domestic energy development and conservation, and forcing China's hand on protectionism would increase GDP by about $500 billion a year and create at least 5 million jobs.
Longer term, large trade deficits shift resources from manufacturing and service activities that compete in global markets to domestically focused industries. The former undertake much more R&D and investments in human capital.
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.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.