Peter Morici has a good account of the problem:
The trade deficit, which in recent years has topped 5 percent of GDP, is a huge drain on demand for U.S. goods and services. Imports exceeding exports by 5 percent requires Americans to consume 105 percent of what they produce to keep the economy going. Essentially, Chinese, Saudi royals and other foreign sovereigns and private investors have been buying the bonds that permit Americans to borrow to consume more than they produce. Foreign lenders bought Treasury securities and collateralized debt obligations that fueled the housing bubble, reckless lending against home equity, and foolish household borrowing. That house of cards has collapsed, and without a sizeable reduction in the trade deficit, a sustainable growth path for U.S. GDP is not possible.
Oil imports and trade with China account for 90 plus percent of the trade deficit. Policies that conserve oil, boost domestic energy production, and redress the trade deficit with China are urgently needed. While needed, projects to boost alternative energy sources will hardly quickly help oil imports, and the diplomacy, favored by both Bush and Obama, have failed to persuade China to stop subsidizing its exports, undervaluing its currency and manipulating the rules of free trade. Chinese mercantilism is rocking Midwestern manufacturing, while both the Bush Administration and government in waiting behave as if this is a grand chess match for global diplomats with no urgency.
Moricl believe that the new Obama team may not be up to the challenge. The problems are structural and will not yield to a job stimulus approach:
Reflating the economy through huge government spending and budget deficits, without addressing trade with China and oil imports, would not create enough good paying jobs to reverse the downward slide in workers wages.Because American workers are so heavily leveraged with debt, any downward slide of wages will mean that many workers will be unable to pay their debt, which in turn will lead to more losses for banks, and will also effect the international institutions that have invested in American Mortgage debt. In addition an enormous personal debt, including credit card debt stands at risk. Once a highly leveraged debt based economic system begins to fail, the leverage begins to work inexorably to destroy the wealth that it built.
To stop the destruction of good paying jobs, Obama must push through an infrastructure-focused stimulus package to soften the impact of the recession and stem jobs losses, and at the same time, he must fashion policies to unlock credit markets, reduce oil dependence and fix trade with China.
The resulting wreckage will force a radical rebuilding that will leave precious little capital available to pay for the rebuilding of the energy system we need during the next 40 years. This is one reason why low cost nuclear power generating system will be an absolute necessity. The Liquid Fluoride Thorium Reactor system provides an elegant paradigm for rebuilding the America energy system, and indeed represents the only high energy option we may be able to afford. If the United States does not find its way to the LFTR paradigm, its citizens are likely to discover the extent which the Low energy renewables/energy efficiency approach will fail to supply enough energy and will lead to widespread misery at a level that is almost inconceivable now.