Question

Explain how international tourism could assist in reducing the current sizable U.S. trade deficit. How could it increase the deficit?

Answer 1

Tourism is considered as an invisible export and given the same status as the trade of a nation. If a nation is receiving more tourist it is equivalent to trade or exports of the nation. More tourists the nation receives more trade it is doing.

For example, A Chinese tourist in the US will visit several places like Grand Canyon, Yellow Stone, Alaska and Niagra falls. At all these places he will be making several demands in form of his hotel accommodations, traveling, food and other items which he will be buying. All these demands will pay something for those factors of production in the US, just like an exporter in the US will do (if an exporters would have send those good to China he would have earned the same).

So, tourism like trade brings foreign currency in the country and reduce the trade deficit.  

It works another way round too, consider a tourist from the US visiting India and spending dollars in India. He will bring Dollars with him from the US and buy things in India, just like he would have done when India had exported its good to the US. It will increase the trade deficit because the US is buying more of Indian product.