Dealing with ‘The Great Recession’

Is fixing our out-of-whack trade situation with China the key to recovery from the current economic mess?

JIM DESTEFANI, Editor Contact me

It is if you believe Peter Morici, a professor at the University of Maryland Robert H. Smith School of Business and former chief economist at the U.S. Trade Commission.

Morici argues in an article entitled “The Great Recession” that this meltdown was caused by structural imbalances in the global economy, and that no stimulus spending can fix those imbalances. Instead, the key to recovery is addressing the U.S.’s massive trade deficit with China.

“China and several other developing countries produce far more than they consume and enjoy huge trade surpluses, thanks to artificially undervalued currencies, export subsidies and import restrictions,” Morici writes. “Those require Americans to consume far more than they produce and the United States to amass huge trade deficits and foreign debt, or global demand falls short of supply and unemployment skyrockets.”

According to Morici, the Chinese government has contributed to the current woes by purchasing massive quantities of U.S. Treasuries in an effort to keep its currency undervalued and exports flowing. Now the Chinese complain that Washington borrows too much and threaten to stop purchasing U.S. debt. “That’s like a drug pusher complaining about client addiction,” he writes.

To dig out of the current mess, Morici believes the U.S. needs to stop appeasing Beijing and instead challenge “renegade mercantilist” China on its trade and currency manipulation policies. “Fixing the trade with China would do more to boost demand for U.S. growth and employment better than any stimulus spending could ever deliver,” he concludes.

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