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Monday, March 13, 2017

Trade Deficit - All You Need To Know

Trade Deficit is the excess of a country’s import bill over its export receipts. 

To illustrate, the US trade deficit of $502 billion in 2016 means that the country spent $502 billion more on importing goods and services from other countries last year, than it earned by shipping stuff out.

India runs a trade deficit, with its import bill on crude oil, precious metals, electronic goods and other items, far exceeding its export earnings. In April to December 2016, India’s trade deficit was $76 billion.

Running a persistent trade deficit has 3 key adverse effects on the economy
1)The country’s demand for dollars (foreign exchange) is usually greater than the supply. This leads to a steadily weakening home currency.
2)A high trade deficit also forces a country to constantly look to foreign investors to make up the gap between its export earnings and its import payouts.
3)In a slow-growing world, a rising trade deficit could be an indication that domestically produced goods are unable to compete against imports. If local factories shut down, that leads to job losses. It is the last factor that has the Trump camp worried. The dollar has been none the worse for US’ sustained deficits.

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