Question

how does the exchange rate and trade deficit or surplus affect a countries economic well- being? In what situations is the U.S. harmed/ benefited from the various positions of each ( high trade deficit with a weak U.S. dollar trade surplus with a strong U.S. dollar. etc.)

Answer 1

Trade deficit means import is greater than the export that causes the countries to buy the forex in the forex market and pay for the imports. It leads to the depreciation of the domestic currency and purchasing power of the individuals come down. It leads to the rise in inflation in the economy. But, currency appreciation takes place when there is a trade surplus. When trade surplus takes place, there is a higher demand of the domestic currency than that of the foreign currency. It leads to the appreciation of the domestic currency.
The stronger domestic currency leads the export to suffer and imports become cheaper and vice versa. It also affects the US economy. When there is a trade deficit in the USA and the Dollar depreciates against the other major currencies, then it favors the export as less dollar is required to be paid by the importers of US goods. It acts as an advantage to the US exports. But, it acts as a disadvantage to the imports as more dollars are paid for the import.
When, the currency appreciates, then the import becomes cheaper and export becomes costlier and the US export will suffer.