President Bush has proposed a government stimulus package to avert a recession, and the loyal opposition has promised it will have bipartisan support. But our leaders are addressing only part of the problem.

The real cause of our basic economic woes is the trade deficits, which reached an astronomical $762 billion in 2006, cost millions of industrial workers their jobs, caused wages to stagnate, worsened the distribution of income and are rapidly converting the United States into a second-rate power and a partially owned subsidiary of the Chinese and the Arabs. (The Chinese may have found a new way to expand the Communist empire: The capitalists will happily sell their companies to them!)

Our leaders are acting as though our problem were merely a Keynesian insufficiency of demand. Were that the problem, putting more money into the hands of consumers would indeed be helpful, at least to the extent the money was spent on goods produced in the United States. But American consumers need to be consuming less, not more. In 2006, Americans saved 0.4 percent of their disposable income (income after taxes). By way of contrast, in the countries exporting to us, the Asian countries for example, the savings rate is 15 percent or more. In any case, we need much more than a temporary fix.

What we need is a policy that would avert a recession and contribute to long-term economic growth. To fill that bill, we desperately need increased investment at home, investment in new factories and expanding output in existing factories. For such investment to take place, businesses need to be assured that there will be a market for their products.

In 2006, gross business investment in the United States barely exceeded depreciation allowances. Few American corporations are willing to expand or build factories at home. Many have plenty of money, which they use to buy back their own stock, an activity that consumes capital and does not create it. Many choose to locate abroad, where markets are assured, labor is cheap and plentiful, and the products can be exported to the United States without tariffs.

Both excessive consumption and low investment can be blamed on the trade deficits, on the deliberate policy of Japan, China and some of our other trading partners to get and maintain a favorable balance of trade at our expense. Some idea of the magnitude of the trade deficit may be garnered from the fact that were exports equal to our imports last year, 7.5 million workers would have been required in manufacturing to close the trade gap, and our national output would have been 5.7 percent greater.

The trade deficits have been growing for more than two decades, but the dramatic growth occurred between 1996 and 2006. Congress has denied us millions of well-paying jobs because all their economic advisers expected free market forces to correct the trade imbalance and viewed the enormous increase in the trade deficits with complacency. As Lee Iacocca writes, "We worship at the altar of free trade, and it's killing us. At the very least, it's time we started charging admission to the American market. And the price of a ticket has to be a little fairness and reciprocity."

China, Japan, and the oil-exporting countries use their trade surpluses to buy American financial assets and existing businesses instead of using their export earnings to import American goods. It is the buying of such assets that increased the prices of corporate stock and real estate, and made Americans feel richer and save less. To make matters worse, our own government since 1984 has encouraged the flow of foreign savings to the United States by giving foreign residents exemption from income tax on interest earned in the United States. And foreign countries pay no tax on income earned in the United States. So-called sovereign wealth funds, owned by foreign governments, are investing heavily in U.S. assets.

Market forces cannot be relied upon to achieve balanced trade. Let us face the truth. China, Japan and smaller countries are pursuing a deliberate mercantilist policy to maintain their growth at our expense. China, like Japan before her, does not permit businesses to import without prior government approval. Foreign companies operating in China are required to have the government or a Chinese company as a partner. This is hardly free trade or a level playing field.

Given the urgent need for action, there is something we can do immediately. Under the rules of international trade, countries experiencing chronic deficits with another nation may impose tariffs or take other measures. In a soon-to-be-published book, my co-authors and I argue for licensing imports by means of Import Certificates, an idea that Warren Buffet has expressed and was included in a bill proposed by Sen. Byron Dorgan, D-N.D., and Sen. Russ Feingold, D-Wis., in 2006. This would enable us to reduce the trade imbalances. This would be the stimulus to American businesses that is needed so badly.

Increasing our exports would open up great investment opportunities in this country to satisfy the increased foreign and domestic demand for American products and usher in a period of economic growth and prosperity.