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Trade Deficit Essay

1781 words - 8 pages

Trade deficit has been a concern for a very long time. It is the total of goods and services that are imported by the United States and is greater than the total it exports. The United States deficit was around $5399.514 billion in 2012, exports in the amount of $2.194 trillion and minus imports of $2.734. The United States depends on foreign oil to drive the trade deficit. Consumer products, drugs, consumer electronics, household goods, furniture and clothing is a large contributor to the trade deficit. In 2012 the United States imported $298 billion worth of trucks, auto parts, and cars, while they only exported $146 billion, which ran a deficit of $152 billion ("US Trade Deficit", n.d., ...view middle of the document...

We borrow money from China via selling T-Bills, so we have a trade deficit with them and this T-Bill transaction contributes to the national deficit, so it is interesting to know how the trade deficit fits. This term is also interesting to me because there is so much that can be learned about our government and different countries, how this really affects me and if it is more than the simple exchange of goods and money.
Explanation of the Key Term
The trade deficit signifies the outflow of domestic currency to foreign markets. It is an economic measure that has a negative balance of trade, where countries exports are way less than their imports. The trade deficit implies that there has to be some “international financial inflow as a balance of payments” (Darity, 2008). When investors want to diversify wealth portfolios, increase rate of return and change IR risk profiles, this causes international financial flows as well.
If we measured a trade deficit on a bilateral basis, it would work out as follows; if country X imports from country Z, its exports to country Z, and on a global basis, country X’s export totals to all countries will be less than country’s X’s imports from all countries. The trade deficit may be hard for some to understand and hard to follow, however, what it actually means is the country’s balance of trade is negative.
The public is sometimes misinformed about the specifics of the deficit issues, through the media, press and the internet. Burks, an Assistant Professor at the University of Southern Indiana, says; budgets are either in a surplus or a deficit. When the government spends less than what it collects in taxes, it runs a surplus. Every year for a four year period, (1998 to 2001), the United States has had a surplus budget and since then the government has incurred an increasing, alarming deficit (Bussing-Burks, 2011, p. 1).
Major Article Summary
In 1996 the United States economy experienced a gradual, however, sturdy appreciation of the real exchange rate and corrosion of the trade balance. This continued into the 2000s, this gave rise to the historically unprecedented accumulation of twenty percentage points of GDP of net liabilities to the rest of the world over a decade (Hunt, 2005). In the second half of the 1990s, the boarder evolution of the United States was mystifying as well. A few decades ago the concern over trade deficits only confronted developing countries, however, now the increasing trade deficits has become a big concern in the United States, in Australia and most European Union countries (Wijeweera & Deskins, 2010, p. 31).
There are many economists that proclaim a trade account deficit is subject to a “self-correcting mechanism” and is basically a short-term occurrence, the economy cannot endure a substantial trade deficit in the long-run. This perceptive suggests that the government needs to not intercede to correct trade imbalances (Wijeweera & Deskins, 2010, p. 31). The question does remain as...

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