Introduction
Trade deficit refers to a situation where a country’s export is less as compared to the value of its imports; this creates a negative in its trade balance whereas; a trade surplus refers to a positive trade balance where the value of exports exceeds imports. In this case, trade balance is substantial in a country’s economy as it influences the value of its currency in the international market.
How Trade Surpluses and Deficits Influence GDP
Trade balance is one of the key factors that affect a county’s GDP. In this case, a country’s GDP will increase when it exports more than it imports. However, when a country depends more on imported goods rather than domestic production, it leads to a trade deficit hence, a significant decrease in a country’s GDP. Therefore, an equilibrated trade balance facilitates a country’s GDP to depend on investments, consumption, and public expenditure (domestic values).
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United States’ Trends in Balance of Trade
Over the last twenty-five years, the US has experienced a consistent trade deficit. The deficit is as a result of high imports of consumer products and oil. For instance, in June 2016, the US trade gap declined to $39.58 billion from an upwardly revised amount of $44. 67 billion, these values fell from a projected $43 billion in the same period. However, over the last 10yrs, the value of exports has significantly increased by 1.9% while the imports declined by 0.8%. On average, over the last two decades, the US records a trade deficit of -13382.68 USD Million (Herzfeld, 2015).
In conclusion, a country’s GDP is influenced by the value of its imports and exports. In this relation, the US over the last twenty-five years has had a consistent trade deficit; this is caused by the differences in the value of imports and exports. Therefore, to obtain an equilibrated balance of trade, a country should balance between its imports and exports.
References
Herzfeld, K. F. (2015). Price and quantity trends in the foreign trade of the United States . Princeton University Press.
