What are the causes and impact of a trade deficit?
Answer (1)
Possible Causes of Trade DeficitHigh demand for foreign products (like gadgets, oil, vehicles)Weak local productionStrong currency (making imports cheaper)Impacts of a Trade DeficitShort-term – It may be helpful if imports are for capital goods (e.g., machines for factories) that can later boost production.Long-term – It can hurt local industries, increase foreign debt, and lead to dependence on imports.A trade deficit occurs when a country buys (imports) more goods and services from abroad than it sells (exports). In simple terms, it means more money is flowing out of the country than coming in from trade.For example, if the Philippines imports ₱900 billion worth of goods and only exports ₱600 billion, it has a trade deficit of ₱300 billion.However, a trade deficit is not always bad. For example, the United States has a trade deficit but remains a strong economy because of its strong service exports and ability to attract foreign investments.In the Philippines, the government must balance trade policies to avoid harming local producers while still meeting the needs of the population.
