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The New Jobs and Trade Numbers are Related
Howard Richman, 9/11/2012

President Obama claims to be a champion of U.S. manufacturing workers. In his advertising, he accuses Romney (falsely) of outsourcing jobs when he was CEO of Bain Capital. In his stump speech, he claims to be the champion of "made in the USA." But the latest economic reports from the U.S. Labor and Commerce Departments tell a different story:

  • On September 7, the Labor Department reported that 15,000 manufacturing jobs were lost in August while only 96,000 jobs overall were created. If not for the extraordinary number of discouraged workers leaving the labor force, the unemployment rate would have risen.
  • On September 11, the Commerce Department reported that U.S. exports declined by $1.9 billion in July. If not for the weakening of U.S. imports, the U.S. trade deficit would have skyrocketed.

The relationship between trade and unemployment was first observed by John Maynard Keynes. In a chapter toward the end of his 1936 book, The General Theory of Employment, Interest and Money, he discussed the danger of tolerating mercantilism, the trade strategy designed to produce trade surpluses. Keynes wrote:

[A] favorable [trade] balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

Of the overall U.S. trade deficit of $42 billion in July, about 2/3 ($28 billion) could be attributed to China. The following graph shows that our merchandise trade deficit (negative net exports) reached a record $310 billion for the twelve months ending in July:

ChinaTradeThru0712.gif

The Chinese government keeps out American products through high tariffs and through government fiat. For example:

  • Vehicles. When a few American luxury cars started getting through China’s already high protective tariffs, the Chinese government raised them from 25% to as high as 47%.
  • Movies, software, and music. The Chinese government permits the piracy of American intellectual property while delaying the import of legitimate products.
  • Meat.  The Chinese government lets in lots of U.S. grain but not much meat.
  • Manufactures. The Chinese government uses subsidies to state owned enterprises to keep its people from buying US products.

Instead of demanding reciprocity from China (we will buy your products only if you buy ours), as he could under WTO rules, the Obama administration dispatched Secretary of State Hillary Clinton to China to beg the Chinese government for loans. The Taipei Times reported on February 23, 2009: “In Beijing, she called on Chinese authorities to continue buying US Treasuries, saying it would help jump-start the US economy and stimulate imports of Chinese goods.”  

In a study of recent worldwide economic statistics for all countries with GDPs of at least $100 billion, my son, father and I substantiated Keynes claim for a strong relationship between trade balance and unemployment. We found that a country with the U.S. budget deficit and debt levels, but no trade deficit, should have an unemployment rate about 2% lower. We also found that government deficit spending has much less effect upon unemployment in trade deficit countries than in trade surplus countries.

In his acceptance speech, Republican presidential candidate Mitt Romney said:

We will make trade work for America by forging new trade agreements. And when nations cheat in trade, there will be unmistakable consequences.

We don't yet know whether a President Romney would be able to move U.S. trade with China toward balance. We do know that President Obama has failed in this regard.

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Comment by Ken McClenton, 9/20/2012:

Dr. Jesse Richman,

Thank you for explaining the principles of balanced trade on The Exceptional Conservative Show (http://www.blogtalkradio.com/theexceptionalconservativeshow/2012/09/20/the-exceptional-conservative-show).  I hope to have you back in October to discuss the Economy and the Elections.

Sincerely,

Ken McClenton

The Exceptional Conservative

 




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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....

    Atlantic Economic Journal:

  • 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]