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Richmans' Trade and Taxes Blog
Morici: 8.5% unemployment may be as good as it gets
Howard Richman, 1/31/2012
In his latest commentary, University of Maryland economist Peter Morici predicts that the unemployment rate won't go below 8.5% in the near future. Here's his reasoning:
Fourth quarter growth was exceptionally strong as the global economy recovered from first half disruptions such as the earthquake in Japan, but going forward economists expect growth to slow to about 2 percent.
Job growth in the range of 130,000 should be expected to accommodate labor force growth, but it won't do much to lower the unemployment rate. That is hardly a pace that will restore economic health or validate President Obama’s heavy intervention in the economy and industrial policies in the upcoming presidential campaign.
What could the U.S. government do? He writes:
Gains in manufacturing production are not accompanied by stronger improvements in employment largely because so much of the growth is focused in high-value activity. Assembly work, outside the auto patch, remains handicapped by the exchange rate situation with the Chinese yuan.
The situation with the yuan is the single largest impediment to more robust growth in manufacturing and its broader multiplier effects for the rest of the economy; the Obama administration indicated over the holidays it has no intention of challenging China on this issue, and it enjoys the unlikely support of House Speaker John Boehner.
The current Washington establishment is oblivious to reality. So long as China and almost all of the other emerging market countries are allowed to continue their currency manipulations, there will be little manufacturing job growth.
The only hope on the horizon is that likely Republican presidential candidate Mitt Romney might balance trade if elected president. His current trade position is:
Mitt Romney believes that free trade is essential to restoring robust economic growth and creating jobs. We need to open new markets beyond our borders for American goods and services on terms that work for America.
Opening New Markets
Every president beginning with Ronald Reagan has recognized the power of open markets and pursued them on behalf of the United States. George W. Bush successfully negotiated eleven FTAs, encompassing sixteen countries. He also had the vision to commence negotiations with a number of allies around the Pacific Rim to expand significantly the Trans-Pacific Partnership. All told, these agreements have enabled people across the world to come together and build a better future. Economists estimate that the agreements have led to the creation of 5.4 million new American jobs and support a total of nearly 18 million jobs. Looking beyond just our FTA partners, our total exports support nearly 10 million American jobs. These are not just jobs; they’re good jobs, paying significantly above average, and more than one-third are in manufacturing.
- Reinstate the president’s Trade Promotion Authority
- Complete negotiations for the Trans-Pacific Partnership
- Pursue new trade agreements with nations committed to free enterprise and open markets
- Create the Reagan Economic Zone
China presents a broad set of problems that cry out urgently for solutions. It is time to end the Obama administration’s acquiescence to the one-way arrangements the Chinese have come to enjoy. We need a fresh and fearless approach to that trade relationship. Our first priority must be to put on the table all unilateral actions within our power to ensure that the Chinese adhere to existing agreements. Anyone with business experience knows that you can succeed in a negotiation only if you are willing to walk away. If we want the Chinese to play by the rules, we must be willing to say “no more” to a relationship that too often benefits them and harms us.
- Increase CBP resources to prevent the illegal entry of goods into our market
- Increase USTR resources to pursue and support litigation against unfair trade practices
- Use unilateral and multilateral punitive measures to deter unfair Chinese practices
- Designate China a currency manipulator and impose countervailing duties
- Discontinue U.S. government procurement from China until China commits to GPA
As a result of Obama’s dismal jobs record, Romney will have a good chance to win the industrial states this fall. If he were then to put into place effective measures to balance trade, he could preside over a rebirth of American manufacturing.
Comment by Michal, 1/26/2013: