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 percent, the trade gap has jumped more than 35 percent.
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 states 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 power 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 percent.
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 intransigence on cyber-security and passive resistance on nuclear issues with North Korea.
Other Asian 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 at least a $2,000 advantage in pricing the Camry against the Ford 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 percent greater than today, and unemployment and budget deficits not much of a problem.
Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. Follow him on Twitter.