Report blames U.S. trade gap for 5.6 million lost jobs

WASHINGTON (Reuters) - The U.S. trade deficit in goods other than oil cost American workers 5.6 million jobs last year, with Michigan and South Carolina leading the list of hardest-hit states, a report issued on Thursday said.

"Elimination of the non-oil trade deficit could support millions of new jobs in export industries and contribute to the revitalization of U.S. manufacturing," Robert Scott, director of international programs for the partially labor-funded Economic Policy Institute, said in the report.

"Despite strong export growth over the past few years, that (non-oil) deficit still totaled $473 billion in 2007, only $48 billion less than its record peak in 2006," Scott said.

The report estimated Michigan lost 319,200 jobs in 2007 due to the non-oil trade gap, or 7.5 percent of its total employment. South Carolina was second with 121,000 job losses, or 6.2 percent of its work force, Scott said.

California, Texas and New York had bigger job losses, but with less impact on their total employment because of their larger populations, Scott said.

All 50 states and the District of Colombia had some jobs "lost or displaced" because of the trade deficit, he said.

The most important causes of the non-oil trade deficit are "currency manipulation and other unfair trade practices" by China and other countries, Scott said.

In an interview, Scott said the United States should impose a tariff on Chinese goods to level the playing field.

His findings contrast with those of the business-friendly Peterson Institute for International Economics, which has estimated the overall U.S. economy is approximately $1 trillion richer each year because of globalization.

The report also comes at a time when the Bush administration and many economists are crediting growing U.S. exports with keeping the U.S. economy afloat.

In the first seven months of 2008, exports increased by 18.3 percent to $1.1 trillion compared to the same period last year while imports rose 12.9 percent to $1.5 billion.

Trade has been an issue in the U.S. presidential campaign, with Democrat Barack Obama vowing to end tax breaks that encourage corporations to ship jobs overseas and promising to crack down on China's currency practices.

Republican John McCain has criticized Obama for opposing free trade pacts with South Korea and Colombia that the Bush administration wants Congress to pass.

(Reporting by Doug Palmer; Editing by Eric Walsh)