Response to Classmates Discussions

Bus626 Week 6 - Discussion Forum 2

Guided Response: In your response take the opposing view of the original post regarding the trade deficit. Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your opposing view by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post

Jade Young

 

According to Gwatney (2018), the balance of payments refers to the summary of all economic transactions between a country and all other countries for a specific time period, usually a year (19-5). The balance of payments can influence rates and purchasing power through the exchange of currencies when export and import transactions are made.

A trade deficit is the situation when a country’s imports of goods and services are greater than its exports (Gwatney, 2018). Trade deficits can cause a series of problems for a country’s economic growth. When a country is more dependent on the imports of another, it weakens its stability as an independent economy. It creates negative pressure on a country’s currency under a floating exchange regime. With a smaller domestic currency, imports are more expensive to the economy with the trade deficit. When imports continue to surpass exports, the trade deficit continues to grow, which leads to more outflow of the US dollars. If the dollar weakens and imports become more expensive while exports are cheaper, it will result in some moderation of the trade balance.

PROS: Employment Opportunities, Improves the country’s standards, Foreign Investments.

CONS: Employment opportunity decreases, Reduction in Currency Value, Depressing effect on wages.

 

Dhruba, (2019). Pros and Cons of Trade Deficit. Article. Retrieved by https://honestproscons.com/pros-and-cons-of-trade-deficit/

Marlon Fletcher

The US should be concerned about our trade deficit. A trade deficit occurs when the value of a country's imports exceeds the value of its exports with imports and exports referring both to goods, or physical products, and services. This would generally hurt job creation and economic growth in the deficit-running country. Much of the complaints among U.S. politicians about bilateral U.S. trade deficits, especially with China, the country with which the U.S. runs what is by far its largest bilateral trade deficit. Currently the President has made reducing the U.S. trade deficit a priority of his administration. He and his advisors argue that renegotiating trade deals, promoting “Buy American” policies, and confronting China over what they see as its economic distortions will shrink the trade deficit, create jobs, and strengthen national security.

The fundamental cause of a trade deficit is an imbalance between a country’s savings and investment rates. Today’s $621 billion deficit, representing about 3 percent of gross domestic product (GDP), is down from a 2006 peak of more than $760 billion, which at the time was over 5 percent of GDP. By far the largest bilateral trade imbalance is with China. The United States ran a $419 billion goods deficit with China in 2018. The deficit has heightened concerns among some economists over job losses and their repercussions in local communities. Some have argued that the large inflows of foreign capital that accompany trade deficits can lead to financial bubbles and may have contributed to the U.S. housing crash that began in 2006.

A trade deficit is neither inherently entirely good nor bad. Some argue a larger trade deficit can be the result of a stronger economy, as consumers spend and import more while higher interest rates make foreign investors more eager to place their money in the United States. Economists worry that too much focus on the deficit could lead to a revival of protectionism and a new global trade war.

 

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com