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Was It Made In America

Text Box: Put your neighbor to work! Buy US made products! Text Box: TALK BACK: Cutting Trade Gap in Half Would Create Up To 5 Mln Jobs 06/09 09:04 AM These are the personal views of Peter Morici, a professor at the University of Maryland'sRobert H. Smith School of Business and former chief economist at the U.S. International Trade Commission: The Commerce Department reported the April deficit on international trade in goods and services was $43.7 billion, compared with $27.1 billion when the economic recovery began. The trade deficit, along with the credit and housing bubbles, were the principal causes of the Great Recession. A rising trade deficit again threatens to sink the recovery and push unemployment above 10%. Most fundamentally, U.S. economic growth and jobs creation has slowed because the demand for U.S. made goods and services is expanding too slowly. Supplying what Americans and global consumers buy is not the issue, but rather U.S. and export customers don't want enough of what Americans could make. At 3.5% of GDP, the trade deficit subtracts more from the demand for U.S.-made goods and services than President Obama's stimulus package added. The Obama stimulus was temporary and now dissipating, whereas the trade deficit is permanent and swollen again. The high cost of imported oil and gasoline and subsidized manufactures from China account for nearly the entire deficit. During the recovery, both the cost of imported oil and Chinese imports have risen with consumer spending, and now these threaten to sink the recovery by year end. Money spent on Middle East oil and Chinese coffee makers cannot be spent on U.S.-made goods and services, unless offset by exports. When imports substantially exceed exports, Americans must consume much more than the incomes they earn producing goods and services, or the demand for what they make is inadequate to clear the shelves, inventories pile up, layoffs result, and the economy goes into recession. To keep Chinese products artificially inexpensive on U.S. store shelves and discourage U.S. exports into the Middle Kingdom, China undervalues the yuan by 40%. Beijing accomplishes this by printing yuan and selling them for dollars to augment the private supply of yuan and private demand for dollars. Annually, those purchases come to about $450 billion, or about a 35% subsidy on China's exports of goods and services. Similarly the failure to develop U.S. oil and gas resources--and speed the deployment of natural gas use and more fuel efficient vehicles--sends abroad dollars that do not return to purchase U.S. exports. Greater domestic production and conservation might not lower the price of gasoline or heating oil by much, but it would keep more of the dollars spent on energy in the United States, creating jobs. Cutting the trade deficit in half over three years would increase U.S. GDP by about $500 billion dollars and create up to 5 million additional jobs. This would increase growth to 3.6% from the expected 2.5%, and lower the unemployment rate by three percentage points. Absent some correction in the trade deficit, growth at 2.5% may prove too slow to be sustainable. Many companies will find they can boost productivity and slash payrolls to keep up with such slow growth, and undermine consumer confidence and send the economy into a negative spiral and recession. Longer term, the combination of expensive oil imports and China's currency policies reduce U.S. growth by one percentage point a year. The U.S. economy would likely be $1.5 trillion larger today but for the trade deficits on Continued on page 4#

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