The US is facing soaring trade deficits, but rising energy prices are a bigger danger

The current trade numbers are showing that difficult bilateral economic issues will linger on, alongside dangerous confrontations on Korean problems, Iran’s nuclear treaty, extraterritorial sanctions, and fundamental principles of the world order.

That no-war, no-peace state of U.S.-China relations is a result of so many irreconcilable “red lines,” where the American concept of “strategic competition” looks more fitting than China’s advocacy of “great power relationship,” “win-win cooperation,” “shared destiny of humankind,” etc.

In that context, it is absolutely essential that the U.S. maintains a steadily growing economy at the cutting edge of technological innovation, with investments in human capital through education, healthcare and vocational training. Washington must make it possible to bring back into productive labor force some of the 95 million Americans without jobs and a meaningful future.

Expanding the volume and quality of labor supply would increase the economy’s non-inflationary growth potential, and that, in turn, would accommodate a sustainably faster growth of demand and output in an environment of price stability.

At the moment, the economy’s physical limits to growth, set by the available stock and quality of human and (physical) capital, are at a dismally low 1.6 percent. The actual growth rate of 2.8 percent in the first quarter of this year exceeds those limits by more than a percentage point, indicating strong capacity pressures in labor and product markets.

Those pressures are reflected in actual inflation indicators that are currently at, or above, their target ranges. The immediate task, therefore, is to prevent accelerating inflation that would inexorably lead to rapidly rising interest rates, collapsing asset prices and a growth recession of unknowable amplitude and duration.

The soaring oil prices — marking a 13 percent increase over the last month — are the most serious threat to price stability. And the crucial issue here is whether the White House can rapidly get from Saudi Arabia those additional 2 million barrels per day that could stabilize, and reduce, the costs of energy.