Examiner.com

by Nick Doms

The latest US trade deficit report of June showing a widening of the trade gap to $49.9 billion is not a cause for worry nor will it ultimately impact the US economic recovery negatively.

The month of June saw an increase of imports while our own exports stagnated in comparison to the May figures. This is in line with what several port authorities reported earlier.
The increase of imported goods sheds a positive light on a large part of our economy, namely consumer demand and consumption. It also signifies that US companies are restocking their depleted inventories because of the increase in demand.

In good economic times and job growth, the US has seen and lived through the same identical trade deficits. Therefore, the new figures cannot be correlated to the current financial crisis nor should it be used as a negative sign.

Peter Morici, University of Maryland economist, blames the artificial weakness of the yuan-renminbi for the stagnation of US exports to China and the current trade imbalance between the US and China.

A recent report written by John Butler and Jon Boylan, and published by www.financialsense.com, proves the exact opposite and further states that the quest of Timothy Geithner, US Treasury Secretary, to force China to de-peg its currency is unwarranted and may unleash a trade war with China without resolving the current US economic impasse.

• The China trade war

Mr. Morici further goes on record to state a tax imposition of 35% on all Chinese imported goods is necessary to offset the Chinese subsidies that harm American businesses and workers.

It is well known that China has a government policy to subsidize its manufacturers, but economists forget too soon that the US is very well versed in handing out government subsidies for certain US made products as well.

The stagnation of exports and the subsequent trade deficit can be contributed to a shrinking demand of overseas importers due to the fragile nature of their economies, the reduction in consumer demand or a combination of both.

Imposing unnecessary import taxes is the same as trying to fix a mathematical equation by fidgeting with one side only in the hope that such will bring back the desired but artificial economic equilibrium.

Global and integrated economies no longer work as closed entities and the solution can only be found in international cooperation.

The artificial equation ceased to exist when the US set the world on a path of globalization in 1947. Our responsibility is now to walk again in front of others instead of talk for them.

http://www.examiner.com/examiner/x-43877-International-Trade-Examiner~y2010m8d11-US-trade-deficit-does-not-affect-US-economic-recovery