Say it again: It’s the trade deficit, stupid

The latest uptick in the unemployment rate is bad news for the U.S. economy and really bad news for Barack Obama’s reelection prospects. But maybe this will realert him to the fact that it’s still "the economy, stupid" and that the name of the game always should have been and remains jobs, jobs, jobs.

So how does the U.S. get jobs? The usual route is some kind of government stimulus package to fund "shovel ready" infrastructure projects and tax cuts to stimulate consumption spending. But that’s already been done, and in view of the budget deficit of both the federal and state governments, it’s not going to happen again now.

There is a second route, and the Obama administration should lose no time in taking it. That is to reduce the U.S. trade deficit. Yes, I know about the administration’s export-doubling policy, and it’s an unobjectionable policy so far as it goes. But the uptick in unemployment followed an uptick in the monthly U.S. trade deficit even though U.S. exports were up. The point is that if imports are rising faster than exports, it doesn’t matter whether you double, triple, or quadruple exports — you’re still going to lose jobs. So the focus has to be on reducing imports as well as on increasing exports.

In this regard, the administration is its own worst enemy, or perhaps I should say that the Treasury Department is the worst enemy of the administration. Last month Treasury again had the opportunity officially to declare what everyone has known for a long time: that China is manipulating its currency in violation of IMF and WTO rules. As it has consistently done for the past several years, Treasury ducked. This is just plain submission to intimidation. Treasury Secretary Tim Geithner has regularly said that China is intervening in currency markets and that it needs to allow its currency to appreciate. He thus knows full well that China is manipulating its currency. But he won’t make an official complaint because he fears a backlash from China. Well, the problem with that is that it’s going to get his boss a backlash from American voters.

Another example of the administration shooting itself in the foot is GE CEO Jeff Immelt. He’s chairman of the President’s Council on Jobs and Competitiveness. When he took that position I thought it meant he was going to work on creating jobs and making America more competitive. But he too yielded to intimidation when he announced that GE would move its avionics operations into a joint venture with China’s state-owned AVIC. Now keep in mind that avionics are not labor-intensive. So this decision was not made in order to take advantage of China’s cheap labor. It was made because the Chinese made it clear that if GE wanted to sell avionics in China it better damn well make the avionics in China.

That would have been a good time for Obama to ask Immelt to step down as chairman of the council. It’s not that Immelt did something wrong, but he has a conflict of interest. As head of GE, he can’t really stick up for America because what’s good for GE is not always good for America. By asking him to resign, Obama would send a strong signal that he’s serious about American jobs.

Look, the numbers are simple and compelling. America has a trade deficit of about $500 billion annually. That translates to somewhere between 5 million and 10 million jobs. Let’s say it’s 7 million jobs. Cutting that in half gets you 3.5 million jobs and dramatically cuts the unemployment rate, and you don’t have to add a cent to the federal budget deficit. In fact, the increased income and taxes would reduce the deficit.

There are a number of steps the administration should take in terms of monitoring and inspecting incoming cargoes and insisting on compliance with international and domestic trade practices. But two steps could be particularly important. I mentioned above that China manipulates its currency. Everyone knows this to be the case. But what most people don’t know is that many other countries and economies like South Korea, Japan, Taiwan, Singapore, Brazil, and Switzerland do the same. The administration could take countermeasures to offset the impact of these interventions while at the same time calling for negotiations in the IMF, the G-20, and the WTO on establishment of a more effective system of trade-related currency valuation.

The second step the administration should take is a policy of simple jaw-boning coupled with selective counterinvestment measures. I mentioned Immelt’s announcement of the move of GE’s avionics to China. Did the president call Immelt and tell him that if he wants to sell avionics to the Pentagon he better damn well invest in new production capacity in America as well? Or take Korea. It is exporting cars and electronics like crazy to America. Somebody from the White House ought to be suggesting not only that South Korea stop manipulating its currency but that it also move production to the United States.

Finally, when foreign governments like those of China or Israel or Singapore offer special tax holidays and free land and utilities to induce the offshoring of U.S.-based production, the White House ought to match the offers.

Invest in America. Make it in America. Cut the trade deficit. That must be the mantra of the administration.