Unit 4 · Level 2 · Global flows
Trade balances
A trade surplus means a country exports more than it imports; a deficit means the reverse. Politicians love treating this like a football score: surplus good, deficit bad. Economists mostly roll their eyes: every trade deficit is mirrored by capital flowing IN, because the euros and dollars spent abroad have to come back as investment. It's a mirror, not a scoreboard.
Free to play. No ads, no token, no account needed to start.
What you get asked
A trade deficit means a country:
That's the whole definition: more bought than sold abroad. Whether that's a problem depends entirely on WHY. Importing machinery to build factories is a very different story from importing on borrowed money.
The flip side of the US running a trade deficit for decades is that:
Dollars spent on imports don't vanish. They return as purchases of US bonds, stocks and property. The trade deficit and the investment inflow are two sides of one ledger.
Match each balance-of-payments term to its meaning
The accounts must balance overall: money that leaves through one door comes back through another. That's why 'deficit' alone tells you so little.
Germany has long run a large trade ___, exporting far more than it imports.
Cars, machines and chemicals flow out; the earnings flow back as German savings invested abroad. Even surpluses have trade-offs: they mean consuming less than you produce.
So is a trade deficit automatically 'losing'?
The US has run deficits for decades while staying the world's richest large economy. Deficits funded by confident investors differ hugely from deficits funded by desperate borrowing. Context is everything. 🐜
The rest of this unit
Trade balances, petrodollars, and the money that flees at midnight.