June 21, 2011|By
Peter Navarro
The American
economy has been in trouble for more than a decade, and no amount of right-wing
tax cuts or left-wing fiscal stimuli will solve the primary structural problem
underpinning our slow growth and high unemployment. That problem is a massive,
persistent trade deficit — most of it with China — that cuts
the number of jobs created by nearly the number we need to keep America fully
employed.
To understand why
huge U.S. trade deficits represent the taproot of the nation's economic woes,
it's crucial to understand that four factors drive our gross domestic product:
consumption, business investment, government spending and net exports. This
discussion focuses on net exports.
Net exports
represent the difference between how much we export and import. A trade deficit
means net exports are negative, and that directly reduces both the GDP growth
rate and rate of job creation.
America's trade
deficit is costing us close to 1% of GDP growth a year at a loss of almost 1
million jobs annually. That's millions of jobs we have failed to create over
the last decade; and if we had those jobs now, we wouldn't see continuing high
unemployment numbers, padlocked houses under foreclosure and empty factories
pushing up weeds.
It follows that if
we want to get America back to work, we need to sharply reduce our trade
deficit. As a statistical matter, that means sharply reducing our trade deficit
with China.
Every business day,
American consumers buy $1 billion more in Chinese exports than American
manufacturers sell to China, and China alone accounts for about 70% of America's
trade deficit in goods, excluding oil imports. This "Chinese import
dependence" has led a democratic America to owe the largest communist
nation in the world more than $1 trillion, while China holds more than $3
trillion in foreign reserves, most of them in U.S. dollars.
To put these dollar
reserves in perspective, that's more than enough money for China to buy a
controlling interest in every major company in the Dow Jones Industrial
Average, including Alcoa, Caterpillar, Exxon Mobil and Wal-Mart, and still
leave billions to spare.
So how can we
eliminate, or at least drastically reduce, our trade deficit with China? For
starters, we must puncture the myth that China's main manufacturing edge is
solely its cheap labor. Indeed, while low labor costs are a factor, when you
carefully research the biggest source of China's manufacturing advantage, it is
actually a complex array of unfair trade practices, all of which are illegal
under free-trade rules.
The most potent of
China's "weapons of job destruction" are an elaborate web of export
subsidies; the blatant piracy of America's technologies and trade secrets; the
counterfeiting of valuable brand names like Nike and Chevy; a cleverly
manipulated and grossly undervalued currency; and the forced transfer of the
technology of any American company wishing to operate on Chinese soil or sell
into the Chinese market.
Each of these
unfair trade practices is expressly prohibited both by World Trade Organization
rules as well as rules established by the U.S. government, e.g., the Treasury
Department has sanctions against currency manipulation (which, alas, the Obama
administration refuses to use against China despite campaign promises to do
so).
In addition, there
is the Chinese Communist Party's incredibly shortsighted willingness to trade
tremendous environmental damage and a surfeit of workplace deaths and injuries
for a few more pennies of production cost advantage, all because of ultra-lax
regulatory standards. For example, according to the World Health Organization,
almost 700,000 Chinese citizens die annually from the effects of air pollution — that's like
losing everybody in Wyoming every year — while Chinese officials acknowledge more than
2,000 coal mining deaths annually, compared with fewer than 50 in the United
States.
Make no mistake.
All of these real economic weapons have led to the shutdown of thousands of
American factories and turned millions of American workers into collateral
damage, all under the false flag of so-called free trade.
The second myth we
must expose if we are to ever reverse the job-killing trade deficits we now run
with China is the idea that free trade always benefits both countries. That
doesn't hold true if one country cheats on the other. Instead, when a
mercantilist China uses unfair trade practices to wage war on our manufacturing
base, the American economy is the big loser.
Given America's
structural problem with China and absent constructive trade reform, our
economic prospects can only dim further. The presidential candidate who grasps
that essential truth, which is becoming increasingly understood by much of the
electorate, will be the one who wins in 2012. We need someone who can lead this
country to a trade relationship with China founded on the American ideals of
free and fair trade rather than a set of mercantilist and socialist trade
policies that employ the Chinese masses at the expense of American workers.
Peter Navarro is a business professor at UC
Irvine, a CNBC contributor and the coauthor with Greg Autry of "Death by
China: Confronting the Dragon — A Global Call to Action."
Original link of
this article:
http://articles.latimes.com/2011/jun/21/opinion/la-oe-navarro-trade-china-20110621