During the early years of the recovery consumer demand did expand as the household deleveraging process ended. However, too many of those dollars were spent on imports that did not return to buy U.S. exports. The gap between new imports and new exports was lost demand for U.S. goods and services.
At about $500 billion, the trade deficit is almost entirely attributable to the gaps in trade with China and on oil.
Confronting China more forcefully about its undervalued currency and other mercantilist practices and opening up more offshore and Alaskan oil reserves for development could cut the trade deficit in half, jump-start robust growth and create five million jobs, and offer the opportunity for more substantial deficit reduction.