What is the trade deficit?

El faiteth It is a situation that occurs when expenses are higher than income, which leads to a significant shortage of money. There are different types of deficit in the economic sphere; typologies that include the fiscal, foreign, structural, conjunctural and private sectors. This time we are going to focus on the second classification group - the trade deficit - which is intrinsically linked to another concept: the negative trade balance. All the details you need about it, below.

How is the trade deficit measured?

The sale of goods and services from a country abroad (exports) constitute income for the country that sells; while if the process is the opposite (imports) it represents an expense for the country that pays. The difference between income and payments is calledbalance of trade. If a country's income is less than the payments made, the country will have a trade deficit; If a country's income is greater than payments made, the country will have a trade surplus.

The trade deficit reflects the difference that exists between ingresos and spending of a nation with respect to the outside. Therefore, we speak of a trade deficit or a negative trade balance when the cost of imports is higher than that of exports.

What factors influence the trade deficit?

Although the socioeconomic level is constantly changing, we can affirm that the factors that determine the trade deficit are the following:

  • High weakness in the export of goods and services.
  • Economic policy that supports foreign investment.
  • Consumers prefer to purchase foreign goods over domestically produced goods.
  • The prices of foreign goods are cheaper than local goods.

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