Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
US merchandise trade deficit with China set a new record in 2011
According to data released by the Commerce Department this morning, the U.S. merchandise trade deficit with China set a new record high in 2011 at $295.5, up from the last record high, $273.1 billion in 2010. Previous to that, the record was $268.0 billion in 2008. The U.S. trade deficiit with China has deteriorated for 23 straight months (when compared to the same month one year earlier), as shown in the graph below:
Trade deficits are a drag upon economic growth and produce a continuing loss of good paying U.S. jobs. When trade is in balance, jobs lost to imports are replaced by more productive jobs producing exports. But when the U.S. lets its trading partners manipulate currency values and place barriers upon U.S. products, the U.S. loses jobs while gaining little but debt.
In his State of the Union speech on January 24, President Obama said that he is doing much to improve our trade relationship with China. He suggested that someday he might even be able to reduce Chinese pirating of U.S. movies, music and software. Specifically:
Meanwhile, both of the leading contenders for the Republican nomination for president plan to deal with U.S. trade deficits if they are elected. Senator Santorum would reduce the corporate income tax on U.S. manufacturing to zero. Governor Romney would tackle China's trade cheating through the following steps:
Either candidate could quickly solve the problem by invoking a special WTO rule for trade-deficit countries, last invoked by President Nixon with an across-the-board 10% tariff in 1971. The scaled tariff, which my father son and I invented, would be the ideal trade-balancing tariff under this provision. It would take in half of our trade defict with each trading partner as revenue, going up when our trade deficit with that country goes up, going down when the trade deficit goes down, and disappearing entirely when trade with that country approaches balance.
Faced with tariffs in proportion to its trade barriers, the Chinese government would quickly discover that it could let its people buy American-made movies, music, and software, that it could let its huge government sector procure from the United States, and that it could let its currency rise to a trade-balancing level.
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