Let’s look at why balancing trade is, by far, the biggest positive thing lawmakers can do for the economy.  And why China does not, but for our stupidity, have to surpass the U.S. as top economy.

The National Intelligence Council just released a report stating that China will be the number one world economy in 2030.  The U.S. will be number two, but energy independent (because of energy production gains in the last few years).

What they don’t say is what would happen if we balanced trade.  If we balanced trade, it would be the equivalent of a $6 trillion stimulus over 10 years.  That’s very, very, very, big.  That dwarfs any government stimulus spending (tax cuts) and may keep the U.S. economy on top globally.

Why?

Our trade deficit is a reduction in aggregate economic demand.  This year’s deficit will be about $600 billion.

Keynesian stimulus spending is used to kick-start the economy by injecting aggregate demand into the economy via government spending.  Both parties agree on stimulus, even though they don’t say they agree.  Generally, and I’m caricaturing a bit, Dems like stimulus via civilian and infrastructure spending and the GOP likes stimulus based upon military spending and tax cuts.  All say that their stimulus will create jobs.  (There are number on what type of stimulus works the best, but that’s not my point here).

The 2008 recession was a contraction of GDP.  A reduction of aggregate demand for the goods and services produced by the country.

Obama’s 2009 stimulus was $837 billion over 10 years (not in one year, as some seem to assume).  It included both tax cuts and spending.

But if we balanced trade, that would be the equivalent of $600 billion per year in stimulus… i.e. an increase in aggregate demand for U.S. goods and services.  Over 10 years, that is a massive $6 trillion.

That stimulus would cost the government no added spending.  Instead, it would produce tremendous new government revenue, thus enabling us to run (quite probably) budget surpluses.

That is why CPA member companies often say they could double… yes double… the number of their employees if they had a fair shot at the domestic market without foreign country predatory trade practices.  No other policy change can remotely touch that benefit.

Thus, the “fiscal cliff” discussions and all the other problems and solutions being discussed by those Very Smart People in DC… are borderline irrelevant.  Maybe “irrelevant” is too strong, but certainly they are not remotely as important as balancing trade.

For a visual presentation, you can see the trade deficit chart below.  If we eliminated all that red, we would have had so much production and employment, we would not have had a 2008 recession.  We could pay wages, buy goods, pay into retirement funds, build infrastructure, etc.  That red is a reduction in aggregate demand for U.S. goods and services that helped cause the recession and our slow growth.