This opinion piece by Alan Tonelson from Bloomberg’s “View” page offers perspective on the U.S. trade deficit and the obvious connection to high unemployment rates.
Buy American and Fairer Trade Can Solve Job Woes: Alan Tonelson
Bloomberg – VIEW
President Barack Obama’s new jobs plan, if passed by Congress, might spark some activity and even some employment in the moribund U.S. economy. But it’s unlikely to foster the growth and job creation we urgently need, without adding new debt, because the plan ignores a key obstacle to genuine prosperity: the nation’s immense trade deficit.
Before the financial crisis peaked two years ago, most Americans and their leaders understandably, if not wisely, ignored the economic costs of the nation’s trade gap. This chronic shortfall reduced U.S. output and employment, and most economists warned that it was unsustainable. But a string of asset bubbles fueled enough growth and hiring to more than compensate, and the day of reckoning seemed comfortably far off.
Today, however, the importance of the trade deficit can no longer reasonably be denied. In the year through June, it was $422.9 billion (on an annualized inflation-adjusted basis), almost 3.9 percent higher than the year-earlier period. The increase in the trade gap since June 2009, when the recession technically ended, has reduced the growth of the American economy by much more (over 14 percent) than falling government purchases (about 6 percent) or the still-shrinking housing industry (less than 2 percent).
At this point, a substantial reduction in the trade deficit must be made a priority. Otherwise, any economic stimulus produced by the various recovery proposals offered by Democrats and Republicans, including Obama’s, would still leave America’s underlying debts dangerously large.
Stimulus Isn’t Enough
History shows that stricter government austerity, with or without reforms to government regulations or the tax system, can’t alone meet the challenge adequately. Nor could any new stimulus, whether in the form of spending or tax cuts, make up for enough of the money lost when Americans buy imported goods and make investments abroad at the rate they do now.
Reducing the trade deficit drastically, however, could speed growth while actually lessening the need to prop up domestic demand. It could, first, boost exports enough to allow U.S.-based producers to generate most future growth and employment by supplying new foreign customers. And it could lower imports, enabling domestic producers to meet more of the demand at home. In fact, even if demand within the U.S. were to fall somewhat, a reduction in imports could spur growth.
Read the complete article by Alan Tonelson and more from bloomberg.com – HERE
