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 Richmans' Trade and Taxes Blog

Growing trade deficit quashing recovery -- again!
Howard Richman, 1/13/2012

The November data, just reported this morning by the Commerce Department, shows a rising overall trade deficit ($47.8 in November up from $43.3 in October). This worsening trade picture is spearheaded by declining net exports to China ($293.0 billion for the 12 months ending in November) as shown in the graph below:

In the summer of 2010 (the so-called "summer of recovery"), President Obama's massive stimulus would have produced an economic recovery, but it leaked abroad as growing trade deficits due to the adoption by many U.S. trading partners of China's mercantilist currency-manipulation strategy, as shown in the chart below:

Well it's deja vu all over again. The very latest job claims numbers show that the signs of recovery in unemployment from the fourth quarter 2011 are being quashed again. Since Obama took office in January 2009, the U.S. has lost 800,000 manufacturing jobs on top of the 1,200,000 that his predecessor lost during 2008. Balancing trade would create about 5 million American manufacturing jobs (assuming about $100,000 worth of product per worker). It would also create opportunities for providing services to the newly employed manufacturing workers.

The Obama administration could still balance trade and revive the American economy. All it would need to do is invoke the WTO rule, last invoked by the United States in 1971 when President Nixon applied an across-the-board 10% tariff upon imports. Article XII of the WTO agreement gives countries that are experiencing chronic trade deficits the right to impose tariffs (such as a Scaled Tariff) to compel balanced trade.