Dr. Peter Morici, former Chief Economist of the U.S. International Trade Commission and business professor at the U. of Maryland, in this linked editorial makes his most sweeping condemnation of the U.S. trade deficit yet. Aside from blaming the deficit with China on currency manipulation (when, in fact, it’s actually due to the huge disparity in population density between China and the U.S.), you might think that it was I who wrote this piece. He makes the key point that, without eliminating the trade deficit, the stimulus package will have been wasted when the economy sinks back into recession/depression.
I encourage you to read the whole piece, but here are some key quotes:
Trade deficits and shoddy banking practices pushed the economy into recession, and until both trade and the banks are fixed, sustained economic growth cannot be accomplished. The trade deficit will rise again as the effects of the stimulus package are felt, but if its underlying causes are not addressed, the trade deficit will drag the economy back down into a double dip recession.
In 2008, the United States had a $144.1 billion surplus on trade in services. This was hardly enough to offset the massive $821.2-billion deficit on trade in goods.
The following really caught my eye:
However, China …. has beefed up subsidies on its exports in an effort to export its unemployment to the United States and other industrialized countries.
This is a key conclusion of my book, Five Short Blasts, that free trade with badly overpopulated nations dramatically increases our own “effective” population density, sending our unemployment soaring by importing the effect of overpopulation that nations like China, Japan, Korea and Germany (among others) should otherwise experience. It’s very encouraging to me that Morici seems to grasp this relationship.
More key excerpts:
Dollars spent on imported oil and cars and consumer goods from China cannot be spent on U.S. goods and services, and every dollar that U.S. imports exceed exports negates at least one dollar of federal stimulus spending. Overall, the trade deficit overwhelms the positive effects of the Obama stimulus package on demand for U.S. goods and services, GDP and employment. Along with the banking crisis, the trade deficit is a primary cause of the U.S. recession.
Were the trade deficit cut in half, GDP would increase by at least $400 billion, or about $2750 for every working American. Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.
Cutting the trade deficit in half would boost U.S. GDP growth by 1 percentage point a year, and the trade deficits of the past two decades have reduced U.S. growth by 1 percentage point a year. Lost growth is cumulative. Thanks to the record trade deficits accumulated over the past 20 years, the U.S. economy is about $3 trillion smaller. This comes to about $20,000 per worker.
(Note: In inflation-adjusted dollars, the cumulative trade deficit since 1975, the year of our last trade surplus, is now $9.1 trillion and growing rapidly.)
Had Washington acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the federal deficit would be much smaller. The recession would be much less severe.
If the Obama administration relies on stimulus and bank reform alone, the economy will fall back into recession once the spending has run its course. A pattern of false recoveries, much as occurred during the Great Depression, will likely emerge. Conditions will not be as bad, but unemployment will stay at unacceptable levels.
President Obama, your cabinet could benefit greatly by giving Dr. Morici a key role in your council of economic advisors.