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Define the term trade deficit and select the one article that you wish to discuss on the topic trade deficit
Trade deficit is used in measuring the balance of trade, the balance of trade is said to be at equilibrium when the imports are equal to the exports, however when there is a negative result, that is the imports are more than the exports then it is termed as a trade deficit (Schultz, 2012). Within the international business cycles trade deficits usually occur but are corrected by market forces and equilibrium is achieved and the market clears. An extended trade deficit is what really affects an economy, because it will be importing more goods and services and exporting the domestic currency. This ultimately affects the GDP of the country as the net export will be negative (Schultz, 2012).
The current US economy is experiencing an overstretched trade deficit that has been there since 2010. This requires policies to be implemented to correct the situation as the market structures are unable to do that automatically. The bad news is that even though US is a developed country, it only exports services and imports the basic products that a country cannot run without; petroleum and its products (Dean, 2011). This means that these are things that we cannot just stop importing. Already as we are deep into the recession, the households are experiencing hard times accompanied with lack of savings and use of what was previously saved to be able to meet the daily expenditures.
Decrease in savings means no investments and the economy will plunge even deeper into the recession. The GDP will automatically reduce given the decrease in investment and consumption and the negative net export will make it worse. The one thing that is true is that as the country exports more of its currency; it devalues it against the foreign currencies and makes the exports cheaper. This means the economy is facing a double sword that is cutting both the exports and imports as well.
The one danger that the American economy and country as a whole is exposed to is the effects of the debt. A deficit means that the country is running on financial debts to the other countries (Dean, 2011). America has always been on the front line in rebuking any social evils in other countries and placing sanctions, however this has made the country to gain friends and enemies along the way. Given the fact that most of the petroleum and crude oil comes from most of the Middle East countries spells doom and danger. These are countries that are well known to harbour terrorists and have deep thirst for vengeance to America. These are countries that America has different political ideologies like the case of Syria. They are countries that have different religious beliefs with the American people and have sworn to bring the country down.
The steps that should be taken by the government are not only for financial security but also for national security (Dean, 2011). They should ensure that there is no one point that the economy becomes so vulnerable that the people are taken advantage of. Solving the current recession would go a long way as a start step in solving the issues of trade deficit. Increase in employment will ensure that domestic labour force does not flow out of the country as their expertise is still highly required in the country. More and more production of better and improved services will increase the exports and bring the balance of trade to equilibrium or even make it positive. This will rid of all the dangers that come with the trade deficit.
References
Schultz, Stanley, (2012), The American Economy; the Recession and Trade Deficit, University of Wisconsin, Madison
Dean M Peters, (January, 2011),TDD- Trade Deficit Disorder, Forge Magazine, New York.
