Trade Deficit

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DEFINITION of 'Trade Deficit'

An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

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BREAKING DOWN 'Trade Deficit'

Economic theory dictates that a trade deficit is not necessarily a bad situation because it often corrects itself over time. However, a deficit has been reported and growing in the United States for the past few decades, which has some economists worried. This means that large amounts of the U.S. dollar are being held by foreign nations, which may decide to sell at any time. A large increase in dollar sales can drive the value of the currency down, making it more costly to purchase imports.

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RELATED FAQS
  1. What are key benefits to a country that has engaged in a policy of currency depreciation?

    In the modern world, most currencies represent fiat money not backed by any commodity or precious metal and whose value is ... Read Full Answer >>
  2. How can bartering result in a more optimal allocation of resources?

    Bartering can result in a more optimal allocation of resources by exchanging goods in quantities representing similar values. ... Read Full Answer >>
  3. What happens to the US dollar during a trade deficit?

    During a trade deficit, the U.S. dollar generally weakens. Of course, there are numerous inputs that determine currency movements ... Read Full Answer >>
  4. How does the balance of trade impact currency exchange rates?

    The balance of trade influences currency exchange rates through its effect on the supply and demand for foreign exchange. ... Read Full Answer >>
  5. How does the balance of trade impact a nation's capital accounts balance?

    The balance of trade doesn't necessarily impact the capital account balance, but the two are very much related. A nation's ... Read Full Answer >>
  6. What country holds the largest negative current account in the world?

    The country that holds the largest negative current account is the United States. According to the CIA's World Factbook, ... Read Full Answer >>

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