Asked by: Nazarena Iozzo
asked in category: General Last Updated: 12th June, 2020

What happens when a country has a trade deficit?

A trade deficit occurs when the value of a country's imports exceeds the value of its exports—with imports and exports referring both to goods, or physical products, and services. In simple terms, a trade deficit means a country is buying more goods and services than it is selling.

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Considering this, how do trade deficits affect countries?

If a country has a trade deficit, it imports (or buys) more goods and services from other countries than it exports (or sells) internationally. If a country exports more goods and services than it imports, the country has a balance of trade surplus.

One may also ask, what does a trade deficit cause? The fundamental cause of a trade deficit is an imbalance between a country's savings and investment rates. As Harvard's Martin Feldstein explains, the reason for the deficit can be boiled down to the United States as a whole spending more money than it makes, which results in a current account deficit.

Subsequently, one may also ask, are Trade Deficits bad for a country?

The notion that bilateral trade deficits are bad in and of themselves is overwhelmingly rejected by trade experts and economists. According to the IMF trade deficits can cause a balance of payments problem, which can affect foreign exchange shortages and hurt countries.

How does a trade deficit hurt the economy?

Long-term trade deficits hurt the economy. It drives debt, which demands payment sometime in the future. Deficits also allow countries to lose their manufacturing or service competitiveness.

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