Question

What is the current U.S. trade balance? You have just read arguments for and against sustaining a trade deficit—which do you find more persuasive and why? Does your answer change depending on the country you think about (i.e. would you give one answer for the United States, another for Japan, and another for Peru?). What is the relationship between trade deficits and the potential for financial crises? How can trade deficits have a positive economic effect in a country? Again, does a state’s ability to sustain trade deficits depend on the size and/or strength of its economy? (15 points).

Answer 1

First of all before knowing what the current U.S. trade balance is, we have to know what a trade balance is. A trade balance is the difference between the total values of its exports and imports in a given year. If the imports however surpass the exports, the country will be in a trade deficit. However if exports exceed its imports, it is said that the country will be with trade surplus. Due to a drop in the trade deficit in the past couple of years, the U.S. looks like its heading toward an economic recovery.

After reading the article, in my opinion even though it is very difficult to establish trade balance, a country should try its best to have balance between the export and import of its goods. However if I had to tell which I find more persuasive, I think trade surplus is better. The reason why I say that is because if we think about it, trading with other countries is good for the business, however when we begin to see more imports than exports, the companies are basically giving their money to the other countries without seeing the money cycle back into their own economy. For that I think why trade deficits are bad for the economy. That however could not be the case for all countries around the world.

If we take for example food as goods, there are many countries in the world that rely on the import of that. Many african countries are unable to produce their own food due to water and land limitations, which leads them to have need of increase of food imports than exports. This is one example how trade deficit could be positive for a country.

When it comes to the relationship between trade deficits and the potential for financial crises, I think that it is proportional. When the trade deficits increases, the potential for financial crises increase as well. The reason why is because as I said before a country with a trade deficit is buying more that it produces, which in future can could damage the country’s economy.