Trade Deficit with China Could Cost Half-a-Million Jobs

If the U.S. Trade deficit with China continues to rise at its current rate, the economy will shed over half a million jobs this year, according to a new study conducted by the Economic Policy Institute.

Through July of this year, the trade deficit with China has risen 18 percent compared to the same period last year. If the trade deficit continues to mount at that pace, it would reach $267 billion this year.

That would displace between 512,000 and 566,000 workers, the study found.

America’s massive trade deficit with China “threatens to derail an already weak U.S. recovery, throw the economy into a double dip recession, and dramatically increase unemployment,” writes University of Maryland economist Pete Morici at CNBC.com.

What is telling about America’s trade imbalance with China is the fact that exports are growing at a higher rate than imports. However, not nearly fast enough to significantly cut into the 4-1 ratio in imports to exports recorded with China last year.

Exports to China are growing at a 36 percent clip, while imports are rising at a rate of 22 percent.

To demonstrate the massive gap between imports and exports that America needs to close to achieve balanced trade with China, exports to China are set to create 195,000 jobs this year. However, imports are set to cost 761,000 jobs.

“Simply, dollars that go abroad to purchase U.S. imports cannot be spent on U.S. goods and services,” Morici writes. “When those dollars do not return to purchase U.S. exports, jobs are lost and not replaced. A rising trade deficit slows growth and increases unemployment.”

Since China entered the World Trade Organization in 2001, knocking down most trade barriers between the communist country with a mercantilist economy and the U.S., persisted trade deficits have lost 5.5 million manufacturing jobs and 26,000 manufacturing facilities have been shuttered, according to the EPI study.

Simply by addressing China’s policy of systematic currency manipulation, which undervalues the yuan by as much as 40 percent, the U.S. economy could grow by as much as one million jobs, in addition to the U.S. Treasury saving $500 million over six years in annual budget deficits.

“Free trade based on a balance between exports and imports helps nations specialize in what they do best, grow and prosper,” Morici writes. “Rising trade deficits, financed on borrowed money to cover profligate government spending, erode prosperity and compromise sovereignty.”

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