Slash the Trade Deficit to Create Jobs

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.