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Difference between Trade Surplus and Trade Deficit

A Country is said to have Trade Surplus when it exports more than it imports. Conversely, a Country has a Trade Deficit when it imports more than it exports. A Country can have an overall Trade Deficit or Surplus. Or simply have with a specific Country. Either Situation presents problems at high levels over long periods of time, but a Surplus is generally a positive development, while a Deficit is seen as negative. Economists recognize that Trade imbalances of either sort are common and necessary in international Trade.

Competitive Advantage of Trade Surplus and Trade Deficit

From the 16th and 18th Century, Western European Countries believed that the only way to engage in Trade were through the exporting of as many goods and services as possible. Using this method, Countries always carried a Surplus and maintained large pile of gold. Under this system called the ‘Mercantilism’, the concise encyclopedia of Economics explains that nations had a competitive advantage by having enough money in the event a war broke out so as to be able to Self-sustain its citizenry. The interconnected Economies of the 21st century due to the rise of Globalization means Countries have new priorities and Trade concerns than war. Both Surpluses and Deficits have their advantages.

Trade Surplus Advantage

Nations with Trade Surplus have several competitive advantage s by having excess reserves in its Current Account; the nation has the money to buy the assets of other countries. For Instance, China and Japan use their Surpluses to buy U.S bonds. Purchasing the debt of other nations allows the buyer a degree of political influence. An October 2010 New York Times article explains how President Obama must consistently engage in discussions with China about its $28 Billion Deficit with the Country. Similarly, the United States hinges its ability to consume on China’s continuing purchase of U.S assets and cheap goods. Carrying a Surplus also provides a cash flow with which to reinvest in its machinery, labour force and Economy. In this regard, carrying a Surplus is akin to a business making a profit-the excess reserves create opportunities and choices that nations with debts necessarily have by virtue of debts and obligations to repay considerations.

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