Trade deficit

economic-dictionary

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 relations with abroad. In general, a deficit occurs when a country imports more goods and services than it is capable of selling abroad, since it is a ratio that differentiates between what is sold and what is bought.

When does a trade deficit occur?

Instead, a trade surplus occurs when a country sells more than it purchases abroad.

Trade deficit = Exports - Imports

There is a deficit when imports are greater than exports:

Trade deficit: Imports> Exports

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

It should be distinguished from the foreign deficit, which comes from the balance of payments instead of the trade, 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.

Types of trade deficit

The trade deficit can be divided into several types such as the ones we highlight below:

  • Trade balance deficit.
  • Deficit in the balance of services.
  • Transfer balance deficit.

How does a country reach a 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 makes the same product or service more competitive, production capacity and purchasing power, productivity , consumer tastes, 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 the other overvalued, it encourages the purchase of 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 a very exporter, its currency tends to appreciate compared 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 exchange, it loses value. . In the same way, when a currency begins to lose value, it is potentially possible to start buying it in that country, as it is cheaper, as long as it has the desired capacity and production.

Trade policy

Tags:  Business cryptocurrencies markets 

Interesting Articles

add