Demand in China is currently growing at about a 10.5% per year pace while demand in the United States is growing at about a 2.5% per year pace. Normally, this discrepancy would cause China's demand for American products to grow much faster than American demand for Chinese products. However, China practices mercantilism and America practices unilateral free trade.

Chinese President Hu will be visiting the United States from January 18-21. WTO rules let any country that has with both a net foreign debt and a balance of payments deficit enact a scaled tariff to balance trade. President Obama could insist that Hu reduce China's trade surplus with the United States.

In "Freedom in the World 2011" the Washington-based Freedom House said it had documented the longest continuous period of decline since it began compiling the annual index nearly 40 years ago.

"A total of 25 countries showed significant declines in 2010, more than double the 11 countries exhibiting noteworthy gains," the group said.

"Authoritarian regimes like those in China, Egypt, Iran, Russia, and Venezuela continued to step up repressive measures with little significant resistance from the democratic world," it said.

Significantly, the report mentions China, Russian, and Venezuela as authoritarian regimes that have stepped up their repression of their own people over the last year. These are all countries that have run huge trade surpluses with the United States, stimulating their economies while sedating ours.

The following table shows these countries' trade imports and exports with the United States from October 2009 through September 2010. Although the China and Venezuela data are complete (both goods and services), the Russia data does not include services data because that data is not readily available.

These authoritarian regimes run huge trade surpluses with the United States partly by suppressing their own people's current consumption and then using the resultant savings to buy foreign financial assets. This economic strategy is called mercantilism. It only works when the authoritarian countries' trading partners tolerate trade imbalances.

If the United States were to insist upon balanced trade, the economic growth of these repressive regimes would slow, and American economic growth would speed up. We could place a WTO-legal scaled tariff upon our imports from trade surplus countries. Such a tariff would take in half of our trade deficit with each country as revenue. The duty rate would go down as trade moves to balance.

Currently America's free trade policy is contributing to the increase in worldwide authoritarianism. If America were to switch to a balanced-trade policy, the new policy could promote worldwide democracy.

Life sometimes imitates cinema. China just rounded up the usual suspects. Their crackdown on copyright crimes is timed for President Hu's visit to the United States from January 18-21. AsiaOne reports (China detains 4,000 people in copyright crackdown):

BEIJING, CHINA - China has detained more than 4,000 people suspected of violating intellectual property rights since November and will toughen punishment to tackle the rampant crime, an official said Tuesday....

The number of arrests, cases and value of infringements were three times higher than the same period a year earlier, Gao said, according to a transcript posted on the official website China.com.cn.

Wow! The number of arrests is three times higher than last year's roundup! According to ip-sharing.com:

Beijing has launched repeated crackdowns and boosted penalties in the past, but foreign governments and trade groups say its enforcement remains unsatisfactory because it has not been strict enough. In particular, in its WTO complaint, the US complained about prosecution thresholds in Chinese law that allow violators to escape punishment if they make less than 500 copies of an item. It also accused Beijing of violating trade rules by turning a blind eye to the piracy of CDs and DVDs that haven't been passed by state censors....

The 2010 National Trade Estimate published by the office of the United States Trade Representative makes it clear that the United States is aware of China's strategy. China delays sales of the legitimate items while allowing this piracy of U.S. CDs and DVDs. The relevant section of that report begins:

In addition to censorship reviews by Chinese authorities, which can delay the arrival of imported foreign films on Chinese movie screens, the Chinese government has historically decreed “black-out periods” during which no new revenue-sharing blockbuster foreign films may be released in order to prevent competition with Chinese films being released during the same period. Banning the release of new foreign titles or removing popular foreign films during peak seasons not only hurts theatrical revenues but also contributes to increased piracy, as pirates meet immediate consumer demand for foreign titles by offering illegal downloads through the Internet, on pirate optical discs, and pirate video-on-demand channels. (p. 22)

When Presidents Obama and Hu meet in Washington next week, President Obama should tell President Hu that trade between the two countries had better move rapidly toward balance, or he will impose tariffs to force it into balance. The ideal tariff would be a scaled tariff whose duty would take in 50% of our trade deficit with China. The duty rate would go down as China takes down its tariff, non-tariff, and currency-manipulation barriers to U.S. products.

President Obama must choose between pretend free trade and balanced trade. If he chooses pretend free trade, he will be able to watch a pirated-version of Casablanca in his hotel room next time he goes to China. If he chooses balanced trade, he will revive the American economy.

President Obama's new chief of staff is William Daley. According to Reuters:

Daley ... was U.S. commerce secretary when he helped usher through most-favored-nation trading status for China.

Obama's new chief economic advisor is Gene Sperling. According to Wikipedia:

Also in 1999, together with United States Trade Representative Charlene Barshefsky, Sperling successfully negotiated and concluded the China-World Trade Organization agreement in Beijing, paving the way for China to enter the WTO in 2001.

Unlike Daley and Sperling, Robert Cassidy publicly regretted the result of these China negotiations. In the June 2008 issue of Foreign Policy in Focus (The Failed Expectations of U.S. Trade Policy), Cassidy wrote:

As the principal negotiator for the landmark market access agreement that led to China’s accession to the World Trade Organization (WTO), I have reflected on whether the agreements we negotiated really lived up to our expectations. A sober reflection has led me to conclude that those trade agreements did not....

The beneficiaries of the agreement with China fall into two groups: multinational companies that moved to China and the financial institutions that financed those investments, trade flows, and deficits. Foreign direct investment (FDI) in China accelerated at a time when such investment to other parts of Asia was declining and, in 2001, even matched FDI to the United States. Sourcing from China, whether from direct investment or through licensing arrangements, has allowed companies to cut costs and increase profits, as reflected in increased corporate profits and the surge in the U.S. stock market.

Conversely, it is doubtful that the U.S. economy or its workers are better off. U.S. manufacturing jobs declined by more than 2.5 million since China joined the WTO in 2001. While services jobs increased during this period, with the exception of telecommunications, non-tradable jobs accounted for the most significant portion of that increase. Wages have been stagnant and real disposable income for three-quarters of U.S. households has been stable or declining. Only the top quartile of families has seen significant increases in real disposable income....

President Obama has put together an outstanding team for creating jobs -- in China!

Peter Morici had a great Seeking Alpha commentary on December 20 (Downgrade U.S. Treasuries to Junk). He pointed out that the irresponsible tax compromise between the Obama administration and the Republican congressional leadership will result in huge budget deficits into the distant future:

In 2012, when the Congress must revisit the personal and corporate tax codes, permanent reductions in Social Security taxes will be politically necessary to win extensions for the Bush tax cuts benefiting even middle income families and the truly essential benefits businesses need to create jobs, not to mention all the additional goodies the Congress has just bestowed.

This renders the Social Security system absolutely insolvent, and makes permanent budget deficits upwards of $1.5 trillion and about ten percent of GDP permanent.

Then he pointed out that this will cause term-term U.S interest rates to climb and climb, as has already begun:

Just the fear of inflation causes investors to demand higher interest rates on virtually all dollar-denominated bonds issued by government agencies, banks and corporations. In anticipation of the new tax cuts, interest rates jumped, despite massive new bond purchases by the Federal Reserve.

As Washington spends and borrows, the Treasury will have to offer higher rates on new 20 and 30 year bonds, making comparable securities issued in 2010 and earlier worth less in the resale market.

The solution is simple. Balance budgets while balancing trade with the scaled tariff. If the scaled tariff were to just move the U.S. trade deficit back down from the $552 billion rate of the third quarter 2010 to the $386 billion of 2009, it would provide $170 billion dollars of additional federal government revenue while at the same time providing the American people with $166 billion of additional income, due to the improved ability of American manufacturers to compete with imports and to the opening of the currency-manipulating countries' markets to American exports.

Some think that a tariff would violate WTO rules, but not the scaled tariff. WTO rules let countries with trade imbalances impose duties to balance trade. The scaled tariff's rate with a currency-manipulating country would go up when our trade deficit with that country grows, down when our trade deficit with that country goes down, and go to zero when our trade deficit with that country disappears. It would force the currency-manipulating governments to take down their many tariff, non-tariff, and currency-manipulation barriers to American products.

Tea Party leader, prolific author and talk show host Glenn Beck is fond of pointing out that the United States Constitution has within it the secrets for how to put our country back in order. Our founding fathers provided tariffs (duties and imposts) as a primary method for our government to pay its debts. In fact, Article 1, Section 8 of the United States Constitution begins:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

How is his prediction doing? The red line is accurate satellite data through September reported by the University of Colorado; the black line is Schwarzenegger's dramatic prediction:

It is true that sea levels have been rising. In fact, they have been rising for the last 15,000 years due to the melting of the glaciers from the last ice age. But the scare predictions of rapid sea level rise are clearly not supported by the actual data. Some of the world's best physicists have figured out that climate change is mainly due to extra-terrestrial forces, such as solar activity and cosmic rays, not carbon dioxide.

Meanwhile, based upon dramatic predictions like Schwarzenegger’s prediction, the Obama administration is going full steam ahead with its plans to reduce America's carbon dioxide emissions. On January 2, President Obama's Environmental Protection Agency will start requiring that American industries use the "best available control technologies" to reduce carbon dioxide emissions under the Clean Air Act. This action will:

• Hurt America's economic recovery because our exporting industries will face higher energy costs. 
• Hurt American households because their electricity bills will rise.
• Hurt American workers who will lose jobs due to higher business costs. 

Perhaps Congress could amend the Clean Air Act to specify that carbon dioxide is not a pollutant. After all, the Clean Air Act was meant to regulate substances that are harmful to life, not carbon dioxide which is vital to life.