Trade deficit

The trade deficit is the negative difference between what a country sells abroad ( exports ) and what that same country buys from other countries ( imports ).

It is considered one of the  most important indicators in relation to foreign trade and economic relationship with abroad . In general, there is a deficit when a country imports more goods and services than it is able to sell abroad, since it is a ratio that differentiates between what is sold and what is bought. On the other hand, trade surplus occurs when a country sells more than it acquires abroad.

Trade deficit = Exports – Imports

There is a deficit when imports are greater than exports

Imports> Exports

In general, it is usually a negative term, since the word  deficit  derives in that the economy is not only not capable of self-sufficiency , but that the balance with respect to what it produces is lower. In this way, the trade deficit usually affects the economic activity of a country and is usually the source of great macroeconomic imbalances. 

It should be distinguished from the external deficit , which comes from the balance of payments instead of the commercial one, that is, when the income from other countries is less than the expenses incurred with these same countries, including the difference between imports and exports (commercial) , the capital difference and the financial or transfer difference.

In turn, the trade surplus can be divided into:

  • Trade balancedeficit
  • Service balance deficit
  • Balance of transfer deficit

How does a country reach the trade deficit?

The conditions that make a country buy more or less and sell more or less abroad, are several, for example, the  exchange rate  that make the same product or service more competitive, production capacity and purchasing power, productivity , tastes of consumers, etc.

The trade deficit can have serious consequences on the economy. The main one is monetary issues, cause and effect in determining the state of the  trade balance.

For example, when the exchange rate is favorable to one country and against another, that is, one currency has been devalued or overvalued the other, it encourages acquiring products from that country as it is initially cheaper, which may have an impact. in the currencies and reserves of a country.

On the other hand, when a country is very exporting, its  currency tends to appreciate  with respect to others, because if we want to buy in that country, we must acquire that currency, while when we get rid of another currency for the exchange it loses value . In the same way, when a currency begins to lose value it is potentially possible to start buying in that country, because it is cheaper, as long as it has the desired capacity and production.

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