Compare the advantages of positive balance of payments and disadvantages of negative balance of payments
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Economists disagree on the simple question of whether sustained trade deficits are good, bad, or don't matter much for a country and its economy. That's because there are so many variables—so many ways to generate a trade deficit and so many ways it might help or hurt an economy, or reflect good or bad aspects of that economy.
What Is 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. An overly simplistic understanding means that this would generally hurt job creation and economic growth in the deficit-running country.
This view of trade deficits is behind much of the complaints among U.S. politicians about bilateral U.S. trade deficits, especially with China, the country with which the U.S. runs what is by far its largest bilateral trade deficit. That deficit was a prominent campaign theme for President Donald Trump in 2016, and a primary reason he launched a trade war against China after taking office. Trump argued that cutting the trade deficit would create jobs in the U.S. and strengthen the economy.
KEY TAKEAWAYS
In the simplest terms, a trade deficit occurs when a country imports more than it exports.
A trade deficit is neither inherently entirely good or bad.
A trade deficit can be a sign of a strong economy and, under certain conditions, can lead to stronger economic growth for the deficit-running country in the future.
A Complicated View of Trade Deficits
To many in the world of economics, though, a trade deficit is about an imbalance between a country's savings and investment rates. It means a country is spending more money on imports than it makes on exports, and under the rules of economic accounting it must make up for that shortfall. The U.S., for example, can do so by either borrowing money from foreign lenders or permitting foreign investment in U.S. assets.
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