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What is a Trade Deficit?

Recently you may have heard people talking about โ€˜trade deficitsโ€™ in relation to the ongoing global tariffs story. A trade deficit is when a country imports more goods and services than it exportsโ€“resulting in a negative balance of trade. If a country were exporting more goods and services than it imports then that would be…

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Payoneer Team

What do trade deficits have to do with tariffs? 

Often a government who imposes tariffs on imported goods will cite trade deficit as one of the reasons for doing so. It could be that the government sees a large and long-standing deficit with a particular trade partner as evidence that their trade relationship is unfair, or at least imbalanced. It could be that the trade deficit prompts a government to impose tariffs in order to protect domestic industriesโ€“although some domestic businesses may actually depend on imported parts or goods, and so they too can end up being financially impacted by the tariffs. 

How do trade deficits impact global businesses? 

Trade deficits can have a generally positive impact on importers, as they indicate demand for imported goods and services in that country. However, as we mentioned above, trade deficits can prompt governments to impose tariffs in order to boost domestic industriesโ€“and this can lead to an increase in costs for exporters, importers, the end consumer, or a combination of them all.โ€ฏ 

 

Weโ€™ll be following the global trade news closely, so look out for more articles explaining some of the key terms in the story. 

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