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SQUEEKY2's avatar

Could you please explain in your opinion what a trade deficit is?

Asked by SQUEEKY2 (23474points) August 6th, 2018

and what a trade surplus is as well?

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21 Answers

stanleybmanly's avatar

If the value of what you export exceeds that of your imports, you have a trade surplus. If the value of your imports exceeds that of your exports, you have a trade deficit. The United States functions in spite of deficits sustained for decades. We get away with it principally due to the fact that the world’s monetary systems are keyed to the dollar.

SQUEEKY2's avatar

BUT, you’re not actually out real money in either way because you have the goods that were traded ,correct?

So and let’s make this simple for my truck driver brain if you export $100 dollars worth of trade and import only $50 dollars worth of trade you have a trade surplus??

Same as you import a $100 worth of trade and export $50 you have a trade deficit?
Correct?
But you’re not really out actual dollars, you are just up or behind with your trading partners,correct?

stanleybmanly's avatar

Well you actually are out money, but if you can print
It at will with no consequences, you can in large part drive the entire world economy. Were the world to suddenly decide that the dollar should not be the gauge for calibration of value the standard of living for Americans would drop through the floor. The world buys our debt in treasury bonds, principally because the dollar is regarded universally as the safest place to park money. The degree to which that idea prevails can be determined in large part by the level of interest necessary to incentivize sales. And God help us if word ever gets out that there are better safer places to park your money.

Call_Me_Jay's avatar

When I lived near LA harbor, we saw the ships arriving riding low in the water, with thousands of containers full of stuff to fill up American retail stores.

They left riding high, with thousands of empty containers. It was the trade deficit made visible.

zenvelo's avatar

@SQUEEKY2 Let’s say you make crafts for a living, and sell them at the local weekend fair/farmers market.

Each week, you can sell $75 worth of your handicrafts. But you spend $100 on stuff at the fair. You have a $25 trade deficit. As long as you have money in the bank, you can finance that deficit. When you run out o that money, you will have to borrow to pay the difference, or stop buying as much, or figure out how to produce and sell more.

josie's avatar

It’s not opinion. It’s an objective truth.
A trade deficit happens when a country spends more money annually on imports than it receives from its exports.

Zaku's avatar

Trade deficits are part of conventional economics, the academic discipline that shapes thinking in favor of status quo thought patterns and power structures that keep us in a box where the world gets destroyed and people suffer due to a failure to think outside that box.

It’s not an “objective truth” as @josie says, because it’s the difference in the value of exports versus imports, but only in terms of what’s measured and what it’s official values are. It’s an accounting statistic.

ARE_you_kidding_me's avatar

Don’t think of it as just money but resources then it starts to make sense.

elbanditoroso's avatar

What everyone else wrote is technically true.

But like any numbers or any statistics, the devil is in the details, and context is everything. Right now, the whole deficit thing is a political weapon to score political points. No one has the “real” numbers – all of them are cooked for craven political purposes. And there is massive controversy over what columns should be added up to even come up with a figure of deficit and surplus.

For example, if Detroit starts building a car, then sends it to Windsor for some additional work, but the tires are placed on the car in Toledo, is that an import or an export? Or both?

The bottom line is that without a strictly defined set of criteria of what is to be counted, there is nothing but confusing political claptrap. Which is what we have today,

SQUEEKY2's avatar

So it is just measured in money leaving the country compared to money coming into the country?
If and we will keep the numbers low for example only you export $100, and import $125 you have a $25 trade deficit?
Does it not take into account,and we will keep the numbers low again, companies like Wal-Mart import $100 and make triple their money on those imports?
Or like I said it simply is money leaving the country compared to money coming into the country regardless of any profit made on the import trade when it is sold in the usa?

Zaku's avatar

Assuming all the sales you’re talking about Wal-Mart making are done inside the USA, then they have zero impact on the Trade Deficit calculations. A company profiting by taking money from people inside the US has nothing to do with international trade, as it doesn’t increase the amount of money held inside the US – it just moves it from people to a giant mega-wealthy corporation.

SQUEEKY2's avatar

So in simple terms it is measured in money leaving the country compared to money coming into the country, regardless of any profit made on that trade when it gets here?
Correct?

Zaku's avatar

Correct.

Though there are details about how it is calculated and what it includes or excludes that will result in different numbers. Is it the just the value of physical goods? Just products (including, say, software)? And since it’s a “value”, and the value is no doubt very different in the country of origin compared to the destination country, and also different wholesale versus retail, and may depreciate or change in value over time, which value gets used?

The answers to those questions and more are all not things with “factual” answers – they’re answered by the bureaus and analysts that compute them, and vary by who’s doing it, for whatever reasons make sense to them or the people hiring them to do it. (This is just one level of why I made a point of disagreeing with @josie‘s use of the term “objective truth”.)

Usually it’s “goods and services”. It’s usually not just money itself exchanged for other reasons, and in fact a deficit or surplus is often balanced by money coming in as investment or debt in some form or another.

SQUEEKY2's avatar

What I don’t understand is listening to Trump, you would believe it’s the Government that is in the hole with a trade deficit,like it’s actually tax dollars.

Companies like Wal-Mart I don’t think do much on the exporting side of trade, but sure make a fortune on the import side.

Another thing isn’t it the wonderful privatized side of things that do all this trade?

stanleybmanly's avatar

Maybe it would be easier to understand the significance of trade deficits and surpluses if you ask yourself that why it is that China went from dirt poor to second place in 30 years. China is probably in first place. Our TRUE situation in the states is masked due to our unique ability to print money at will. Our trade deficit reflects our “living on credit”.

Call_Me_Jay's avatar

Our TRUE situation in the states is masked due to our unique ability to print money at will.

That seems to be confusing the trade deficit with the federal budget deficit and federal debt.

SQUEEKY2's avatar

Yeah,what I don’t get about a trade deficit,is you (and I mean the us) say you out so much money with a trade deficit, BUT you still have the trade to show for it.

Can I say I am out $35grand for buying my new truck?
I gave the money they gave me a truck.

I do understand trade is measured by money coming into the country and money leaving the country, but to say you have this deficit you still have the trade to show for the money leaving.

Call_Me_Jay's avatar

There is a lot of value added by the exporter that you don’t get back.

You spend $35,000, they give you a truck. They keep a lot of that money, for example in wages for the auto workers and company profits. They aren’t giving you back the whole $35K.

zenvelo's avatar

@SQUEEKY2 The thng is, that country (Country B) has your money, but what are they going to do with it? The only place to spend it is in the country of origin (Country A), and that country doesn’t make anything Country B wants.

That all gets balanced by adjusting the exchange rate. But that makes many things in country B more expensive to its residents, which makes people upset.

So yes, while goods and services going one way are offset by money flowing the other way, the “deficit” is a discrepancy in the actual amount of goods and services moving between the two countries.

stanleybmanly's avatar

@Call Me Jay I don’t think I’m confusing them. The 3 of them are intertwined. China exports to us enormous piles of stuff beyond the value of what they import from us. But they also finance a great deal of the resulting debt through the purchase of our bonds (denominated in dollars).

Call_Me_Jay's avatar

But they also finance a great deal of the resulting debt through the purchase of our bonds

Those are government bonds, funding the federal deficit/debt.

They aren’t funding consumer spending.

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