U.S. Trade Deficit Rises With Increasing Oil Prices And China Imports

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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) — On Tuesday, the Commerce Department plans to report the international trade deficit in goods and services for February, and analysts expect the number to come in at $44.0 billion. That would be up from $27 billion in mid-2009, when the economic recovery began.

The trade deficit subtracts from demand for U.S.-made goods and services, just as a large federal budget deficit adds to it. Consequently, a rising trade deficit slows economic recovery and jobs creation and limits how much Congress and the President may cut the deficit without sinking the economic recovery.

Rising oil prices and imports from China are driving the trade deficit up, and these are major barriers to creating enough jobs to pull unemployment to acceptable levels over the next several years.

If the Obama Administration and Republican leadership in Congress addressed the trade deficit, economic growth, jobs creation and tax revenue would increase dramatically, and the federal deficit could be cut to manageable levels without fear of killing jobs creation.

Jobs Creation
The economy added 216,000 jobs March, but 360,000 jobs must be added per month to bring unemployment down to 6% over the next 36 months. With federal and state governments trimming civil servants, private sector jobs growth must exceed 360,000 per month to accomplish this goal.

Americans have returned to the malls and new car showrooms but too many dollars go abroad to purchase Middle Eastern oil and Chinese consumer goods that do not return to buy U.S. exports. This leaves too many Americans jobless and wages stagnant, and state and municipal governments with chronic budget woes.

Now, the increase of gasoline prices to $4.00 a gallon threatens to further reduce spending on homes and discretionary items made in the U.S. — leaving many U.S. businesses again scrambling for customers and pressured to layoff workers.

Simply, policies regarding energy and trade with China are not creating conditions for the 5% GDP growth that is needed and easily could be achieved to bring unemployment down to acceptable levels.

In March, the private sector added 230,000 jobs, but many were in government-subsidized health care and social services, and temporary business services. Netting those out, core private sector jobs have increased only 157,000 in March. That comes to 50 permanent, non-government-subsidized jobs per county for more than 5,000 job seekers per county.

Early in a recovery, temporary jobs appear first, but 21 months into the expansion, permanent, non-government-subsidized jobs creation should be much stronger.

 

Economic Growth
Since the recovery began in mid 2009, GDP growth has averaged 2.9%, disappointing administration economists who have consistently assumed 4% growth in budget projections and forecasts for the job creating effects of stimulus spending.

Consumer spending, business technology and auto sales have added strongly to demand and growth, and exports have done quite well. However, soaring oil prices and the continued push of subsidized Chinese manufactures in U.S. markets have overwhelmed these positive trends. Now gasoline prices rising to $4.00 a gallon could significantly slow or kill the recovery and recent modest resurgence in jobs creation.

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, White House energy policies are pushing up the cost of driving and making the U.S. even more dependent on imported oil and indebted to China and other overseas creditors to pay for it.

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 them 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 additional business in China.

The U.S. should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports — about 35%. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. It is not protectionism. Rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defence.

This post originally appeared at The Street.

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