Trade Deficits: Causes and Effects and Relationship Between Trade Balances and Long-run Economic Progression (Term Paper Sample)

Trade Deficits: Causes And Effects
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On 19 September 1996, the New York Times and the Washington Post, Wall Street Journal gave an account trade figure announced by the Commerce Department of the U.S indicating that the U.S monthly trade deficit rose by 3.5 billion USD in the month of July 1996. Nearly unanimously, specialists cited that, the trade figures stated in the articles showed a flaw in the economy of the U.S. The news report was not surprising, and the analysis of the rising trade deficit was not controversial CITATION Jos01 \l 1033 (Joseph Quinlan, 2001). The usual understanding is that this trade balance suggests a competitive strength of a country – a low trade deficit reflects a great competitive power of a country hence a higher economic growth. Mainly, surpluses or trade deficits are simply a replication of a nation’s international lending or borrowing profile over a certain period. Neither one, alone, is a suitable indicator of lasting economic progress than the rest.
Nevertheless, the usual understanding of the balances exists in stark dissimilarity to the universal economics profession. Universal economic concept typically, acknowledges trade deficits are the inevitable after-effect of a nation’s preferences as regards saving as well as the new capital ventures productivity. Trade deficits do not symbolize good interpreters of the future economic progress of a country; therefore, they are not viewed as a root cause for apprehension. For example, big trade deficits might symbolize higher economic growth rates as nations imports capital aimed at expanding production capacity. However, they might also symbolize a low savings level and make nations more susceptible to outside economic shocks like dramatic capital inflows reversals. Is this usual understanding wrong, or the economics profession has failed to maintain its concepts firmly grounded in the reality?
Indeed, anyone can formulate a concept concerning trade deficits, followed by speculations about their correlation to the economic performance of a country. The paramount subject is not about the formulation of a concept, but the logical consistency of the concept, and whether the concept is worth an empirical observation. This paper aims to address the subject of whether bilateral or overall trade deficits are linked to the economic performance of a country. We start by examining the basis of popular trade deficit beliefs and contrast these beliefs with a present economic notion about trade balances. Then, we review the connection between trade balances and international capital movements and relate the two economic signs of progress. We then analytically examine how trade deficits are linked to lasting economic growth.
The progression of ideas concerning trade balances
Most of the present popular thinking concerning trade balances can track down its intellectual o