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US merchandise trade deficit with China set a new record in 2011
Howard Richman, 2/10/2012

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:

ChinaTradethru1211.gif

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:

I will go anywhere in the world to open new markets for American products. And I will not stand by when our competitors don’t play by the rules. We’ve brought trade cases against China at nearly twice the rate as the last administration, and it’s made a difference.

Over a thousand Americans are working today because we stopped a surge in Chinese tires. But we need to do more. It’s not right when another country lets our movies, music, and software be pirated. It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.

Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trading practices in countries like China. There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders....

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:

  • 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

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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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]