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Yet another report is out showing how the trade deficit is costing us millions of jobs and hurting our economy. This report has specific numbers: between 2.2 million and 4.7 million U.S. jobs, between 1 percent and 2.1 percent of the unemployment rate and a gross domestic product increase of between 1.4 percent and 3.1 percent.

These are real numbers that were carefully calculated. This is a real problem that is hurting people, hurting small and mid-sized companies, hurting communities, hurting our tax base and hurting our ability to make a living in the future. And there are real solutions available to fix the problem.

If you saw the movie "Roger & Me," you saw what happened to Flint, Michigan when GM's executives moved the jobs out of the country. That movie showed what a trade deficit does. "Roger & Me" came out in 1989 and was really only a small, local look at what was coming to much of the country. In the decades since then, the problem spread to entire regions. This is not some economic dislocation due to changes in the economy; this is regional and even national devastation that doesn't have to happen and that no country should tolerate.

The trade deficit is huge. It transfers around $1 billion a day out of our country. For those well-to-do elites so worried about the budget deficit instead of American jobs, factories, industries and our ability to make a living in the future, the trade deficit increases our budget deficit by between $78.8 billion and $165.8 billion.

New Report From EPI

A new report from the Economic Policy Institute, "Reducing U.S. trade deficit will generate a manufacturing-based recovery for the United States and Ohio," written by Robert E. Scott, Helene Jorgensen, and Doug Hall, shows that:

The U.S. goods trade deficit could be reduced by between about $190 billion and $400 billion over the course of three years (modeled in this paper as having started in 2011) by eliminating global currency manipulation. Without any increase in federal spending or taxation, the United States would reap enormous benefits. As this paper explains, over three years a reduction in the U.S. goods trade deficit of this magnitude would:
  • Create between 2.2 million and 4.7 million U.S. jobs (equal to between 1.4 percent and 3.0 percent of total nonfarm employment)
  • Reduce the national unemployment rate by between 1.0 and 2.1 percentage points
  • Create about 620,000 to 1.3 million manufacturing jobs (27.5 percent of all jobs created by eliminating currency manipulation)
  • Increase U.S. GDP by between $225.0 billion and $473.7 billion (an increase of between 1.4 percent and 3.1 percent)
  • Shrink the federal budget deficit by between $78.8 billion and $165.8 billion (reductions that would continue as long as the trade balance remained stable), as growth in output expands tax receipts and reduces safety net payments
Ohio Senator Sherrod Brown: Multinationals "like the system the way it works."

On a Thursday call to discuss the report and efforts to fix the problems, Sen. Sherrod Brown, D-Ohio, said that currency manipulation is the largest single cause of our trade deficit. He added,

“Our nation’s record trade deficit is more than just a statistic: it affects real jobs in important industries. When industry and the government get tough on cheaters and enforce our trade laws, America wins. That’s why we need to act now on the recommendations published in this new report—and stand up for Ohio’s workers and businesses.”
On the call I asked Senator Brown who in America is on the other side of this – who is encouraging (i.e. paying) Republicans to block things like the currency manipulation bill. Brown replied that in the last 20 years large companies have followed a different manufacturing strategy to move manufacturing to China and sell back into the U.S. The large multinational companies have benefited, always very large companies. "They like the system the way it works," he said.

The companies get less expensive labor, less environmental and worker safety regulation, and the currency advantage. It works for these multinationals, and House Speaker John Boehner is listening to them. There is this economic benefit to them, at the expense of smaller companies, companies in the supply chain, American workers and their communities.

The Cause

The trade deficit is caused by one-sided trade agreements that were agreed to because, as Senator Brown referred to, they benefit a few already-wealthy interests in our country. But like when you sell the farm for a bunch of cash now, these trade deals give away our country's manufacturing ecosystem, lack of enforcement of even those agreements, mercantilist policies in other countries that we do not respond to, violations like currency manipulation and subsidies of various kinds to strategic industries.

Currency manipulation alone is costing us between 2.2 million and 4.7 million U.S. jobs and between 1.0 point and 2.1 points of the unemployment rate. Right now.

A "Shot In The Arm" For Economy

Scott Paul of the Alliance for American Manufacturing said of the report,

“Eliminating our trade deficit would be an incredible shot in the arm for the U.S. economy. We are pleased the EPI report sheds light on this overlooked deficit. We commend Sen. Sherrod Brown for his leadership in working to grow manufacturing jobs in Ohio and the rest of the nation, and we look forward to working with him to enact common-sense solutions."

Fixing currency manipulation would go a long way toward solving the problem. Currency manipulation is the single biggest factor in our huge trade deficit. According to the EPI report, currency manipulation by China and as many as 20 countries is responsible for between $190 billion and $400 billion of our trade deficit, in a single year.

From the EPI report, "Reducing U.S. trade deficit will generate a manufacturing-based recovery for the United States and Ohio,"

Fully eliminating the goods trade deficit requires implementing policies that will help restore demand for U.S. goods and boost supply-side supports. As detailed in this paper, such policies include:
  • Greatly expanding investments in manufacturing R&D and technology diffusion programs
  • Providing public financial support to small and medium-sized manufacturers
  • Developing school-to-work job training systems for non-college-educated workers, including apprenticeship programs modeled on Danish and German models
  • Developing new trade policies that support fair, balanced, and sustainable trade
  • Planning and implementing manufacturing and traded industry strategies, including establishing an institution akin to Japan’s Ministry of Economy, Trade, and Industry
  • Making massive investments in infrastructure, for example by meeting the United States’ $2.2 trillion worth of infrastructure needs over the next five years
  • Greatly expanding public and private investments in green and renewable energy technologies

Such steps could lead to the complete elimination of the U.S. goods trade deficit, which would allow U.S. manufacturing to recover most or all of the market share and employment lost since the late 1990s.
Why Act Now?

From the EPI report:

Why now is the time to act

The leading role played by manufacturing in the nation’s recovery from the Great Recession underscores the urgency of addressing the more than decade-long decline in manufacturing employment. Between February 2010, when U.S. employment fell to its lowest point, and October 2012, the nation created 504,000 manufacturing jobs, which constituted 11.1 percent of the 4.5 million jobs created in that period (BLS 2012a). But manufacturing employment declined slightly between July and October 2012. The recent slowing of U.S. manufacturing employment growth, evident also in Ohio and the Midwest, was expected as federal spending under the American Recovery and Reinvestment Act of 2009 wound down. The slowdown suggests that further growth in manufacturing will require additional demand stimulus.

Read the entire EPI report here.

See Also

Here are just a few recent articles and posts looking at this problem:

FT: How Berlin and Beijing tilted world trade,

Chinese bond-buying, he writes, is matched by increases in the supply of US bonds because Washington has boosted the fiscal deficit to counter the effect of jobs going abroad. If Chinese bond-buying falls, it will be because there are fewer savings to export, and that will happen only when China boosts consumption, creating demand for, among other things, US goods. US unemployment will fall and so will the fiscal deficit.
Ralph Gomory at Huffington Post, Jobs, Trade, and Mercantilism - Part I - Facing Reality
Our nation's continuing massive trade deficits are destroying important sectors of American industry and eliminating desperately needed jobs; yet balancing trade is not even on our government's agenda. This is happening because we are not facing reality, the reality that we are not living in a free trade world but that we are dealing with countries that practice mercantilism.

If we continue to turn a blind eye to this reality, we will become a poor nation.
[. . .]
Our global corporations do not wish to see the negative impact of their actions; they are profiting from the present situation, even if the country is not. They make their goods cheaply abroad aided by foreign subsidies, manipulated exchange rates, and cheap labor, and then import them very profitably into the U.S.

Wall Street is lined up with the global corporations because it too finds the present situation profitable.

Michael Stumo at Trade Reform: Germany uses VAT for export competitiveness. We don’t.
An increased VAT does several things.
* imports are part of the tax base, i.e. imports fund the domestic government;
* exports receive VAT refunds, so they are cheaper;
* allows reduction of other taxes, which is why other countries’ corporate tax rates, for example, are lower than the in the U.S.

Twenty one percent of China’s national government revenue is from border taxes. When imports pay over one-fifth of the taxes, the reduces the burden on domestic citizens and businesses, and enables them to subsidize exports in several ways including VAT rebates and other means.

The bottom line is that a VAT is a powerful tool to use for trade competitiveness.

Scott Paul at USA Today: Obama's second term foe - China,
What did we get in return for this deal? A trade deficit with that country that keeps shattering records ($295 billion in 2011, $290 billion through November 2012), fueled by a glut of artificially cheap imports that are swamping stateside competition. But it's hard for working families to benefit from the modestly lower prices on the shelves of retail chains when household incomes have been drastically reduced by the loss of a steady paycheck.
W. Raymond Mills at Trade Reform, Moving Towards Balanced Trade
... unbalanced trade requires cash to move from one country to the other. This can lead to problems if the cash needed to complete the transaction becomes scarce in the trade deficit country. It can also cause problems for the trade deficit country because domestic production of goods and services are the source of national wealth, as Adam Smith said. Sending money overseas to pay for exports (net) means that domestic production has not kept pace with domestic consumption – a situation that weakens the wealth creating capacity of the trade deficit country. Unbalanced trade is a beggar-thy-neighbor activity. Each nation should seek to avoid become a habitual trade deficit country.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture.  I am a Fellow with CAF.
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Comment Preferences

  •  Tip Jar (4+ / 0-)
    Recommended by:
    Bob B, USHomeopath, Azazello, Mostel26

    Seeing The Forest -- Who is our economy FOR, anyway? Twitter: @dcjohnson

    by davej on Fri Feb 08, 2013 at 08:54:16 AM PST

  •  Seems to me trade deficits are good. (0+ / 0-)

    We're selling lots of our stuff (relatively), so that means MORE or at least stable jobs, right?

    Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

    by dov12348 on Fri Feb 08, 2013 at 08:57:29 AM PST

  •  A large often ignored part of the economic picture (1+ / 0-)
    Recommended by:

    I think some of the bad decisions we make are based on trying to reduce a deficit that can ultimately cripple us.

    Fear is the Mind Killer...

    by boophus on Fri Feb 08, 2013 at 09:30:46 AM PST

  •  Shrinkage announced this morning (0+ / 0-)
    The United States’ trade deficit shrank in December to its narrowest in nearly three years, the Commerce Department said on Friday, and the numbers suggested that the economy did much better in the fourth quarter than initially estimated.

    The country’s trade gap narrowed to $38.5 billion during the month, the department said. Analysts polled by Reuters had expected a deficit of $46 billion.

    "No one life is more important than another. No one voice is more valid than another. Each life is a treasure. Each voice deserves to be heard." Patriot Daily News Clearinghouse & Onomastic

    by Catte Nappe on Fri Feb 08, 2013 at 09:59:23 AM PST

  •  So what are these 'real solutions'? 'Fixing (1+ / 0-)
    Recommended by:
    Roger Fox

    currency manipulation' is a platitude, not a real proposal.

    •  Explain why not? (0+ / 0-)

      If a country manipulates its currency we just put a tariff on their goods to make up for it.

      Seeing The Forest -- Who is our economy FOR, anyway? Twitter: @dcjohnson

      by davej on Fri Feb 08, 2013 at 10:43:01 AM PST

      [ Parent ]

      •  Everyone manipulates their currency. It's a matter (1+ / 0-)
        Recommended by:
        Roger Fox

        of degree. We could declare the worst offenders currency manipulators and I think it will allow us to slap some tariffs on them as you suggest. But it's not a new idea, it's been discussed for decades. And the worst currency manipulators are fairly small countries like Switzerland.

  •  I remember tariffs (3+ / 0-)
    Recommended by:
    davej, Mostel26, Roger Fox

    When I was growing up in the 50s, we had tariffs, or taxes imposed on imports. The US was strong in manufacturing then, most of the products we bought were American-made. We valued our domestic companies and protected them with tariffs.

    Later the use of tariffs was framed as "protectionism" and its opposite was framed as "free trade". Now that we've put tariffs on Chinese solar panels, maybe we can implement more common sense tariffs.

    working for a world that works for everyone ...

    by USHomeopath on Fri Feb 08, 2013 at 10:13:08 AM PST

    •  I like my Subaru (0+ / 0-)

      What kind of cars did auto makers make before they had to compete with Japanese auto makers?

      Ford Pintos and Chevy Vegas.

      Back in the 50's, most of the rest of the world was WWII bomb craters or not yet industrialized.

      •  They competed with pintos and vegas (0+ / 0-)

        before that there was studebaker and packard - great cars from that era - a few still on the road. American cars started to decline with the advent of fins in the late 50's. That introduction of crappiness opened the doors for the foreign makes.

        •  Rebuilt economies after WW2 (0+ / 0-)

          It took at least 20 years for the world economy to find some equilibrium.

          The US manufacturing base had no then little competition from 1945 thru 1965, and 1975. Quarterly trade deficits were common in the mid 60's and by 1975 we had annual trade deficits.

          American cars declined right after WW2, there was no competition....... Disc brakes were still an option on the 1969 Chevelle, yet the Tucker had them in 1948, 21 years with almost no technological advancement.

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Fri Feb 08, 2013 at 05:57:34 PM PST

          [ Parent ]

  •  In the post 1965 world economy (0+ / 0-)

    trade deficts were going to happen. At least if you expected to see Europe and Japan rebuilt and capable of competing in the world market.

    Sorry eliminating the trade deficit is utterly unrealistic and not practical. Creating US jobs, and bettering peoples lives, advancing the condition of working and middle class families has nothing to do with the trade deficit.

    If US manufacturers increased US made wind turbine production by 50% over 10 years, and all those turbines were installed in the US, that would create 500k jobs and.....

    Made in America solar panels, same deal, 500k jobs

    Made in America cable for Electric Grid work, steel for transmission towers....same deal.... 500k jobs.

    Pumped hydro storage systems, same deal 500k jobs.

    We just created 2 million jobs and didnt touch the trade deficit. How about some more?

    Made in America Blue Jeans sell for $25, imported $20. Put a small tariff on imported jeans, and have a capital tax break to expand that factory in Texas where they make blue jeans....

    None of it has anything to do with the trade deficit, creating jobs in America is not linked to the trade deficit. IF you limit your thinking to the trade deficit, you limit the number of jobs that will be created. The trade deficit is a small order effect in our national economy.

    Now if we rebuild our economy, and someone in another country wants to buy some US goods... fine.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Feb 08, 2013 at 06:15:33 PM PST

  •  What year was this written? (0+ / 0-)
    Much of the increase in the trade deficit last year was because of high oil prices, and some economists noted that falling oil prices could help shrink the deficit this year.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Feb 08, 2013 at 06:48:24 PM PST

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