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Massive Trade Deficit Prolongs Recession

By       Message Nathan White     Permalink
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The Commerce Department reported the October deficit on trade in goods and services was $57.190 billion, up from $56.559 billion in September. The consensus forecast was $54.0 billion and my forecast was $53.5 billion.

Still, the trade deficit remains large because of high prices for imported crude oil and refined products, subsidized imports from China, and the continuing woes of the Detroit automakers. At about 4.8 percent of GDP, those pose a significant drag on the economy and combine to destroy millions of high paying U.S. jobs.

The trade deficit will make the recession longer and deeper, and lessen the positive benefits of President-elect Obama's proposed stimulus package. If Obama does not fix the banks and significantly reduce the trade deficit, stimulus spending will not pull the economy out of recession, and the economy could easily slip into a prolonged malaise or depression.

Simply, money spent on Middle East oil, Chinese televisions and coffee markers, Japanese and Korean cars can't be spent on U.S. made goods and services, unless offset by a comparable amount of exports. Since U.S. imports exceed exports by almost five percent of GDP, the trade deficit creates an enormous drag on demand for U.S.-made goods and services. Along with the credit crisis and resulting slowdown in new housing and commercial construction, the banking crisis and trade deficit could push unemployment above 10 percent.

Were the trade deficit with China and other Asian exporters reduced by $200 billion, GDP would rise by at least $400 billion and about 2 million manufacturing jobs could be restored.

The Bush Administration characterizes critics of China's mercantilism as protectionists. Democratic leaders in the Senate and House talk tough, but can never seem to bring a bill to a vote in either chamber that would bring substantive action.

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President-elect Barack Obama's positions are in line with those of leading Congressional Democrats, who express angst about trade with China but take no action. It remains to be seen whether his administration will bring any real change to U.S. trade policies and economic relations with China.

Meanwhile, workers across Middle America suffer, and U.S. automakers abandon their communities for the Middle Kingdom. Wall Street bankers open new branches in China and lavish campaign contributions on both political parties for their compliance in America's policy of appeasement toward China.

Please refer to http://economyincrisis.org/ for more articles concerning America's economy.

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I have a Bachelors degree in Strategic Communications from The Ohio State University and work as the Director of Marketing for Concerned Citizen's Web site www.economyincrisis.org.

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