Could anyone explain what is Trade Deficit and how it affects a country? And what is the role of Debt Trap in Trade Deficit?
- 1 decade agoFavorite Answer
A trade deficit is a country buying more imports than selling goods to other countries (or exports). For instance, the United States is known as a debtor nation because over the last 50 or so years at least we've bought more goods from other countries then countries have have from us. Each year we have been in the negative by billions of dollars. The reason why? Our currency s value has traditionally been able to get us a good exchange rate and goods and services are relatively cheap for us, but since our currency is relatively high, other countries can't afford to buy U.S. products because they are expensive or considered a "luxury item". We have the greatest deficit with the country of China.
A debt trap has added leverage in other countries like Japan to buy more from us because we buy so much from them.Source(s): Took Econ 1A in college