Chapter 33, Problem bFCT

To determine

Why is it that if the sum of trade surplus across nations in Eurozone were to shrink, then then sum of trade deficits experienced by other nations in the Eurozone also would tend to diminish.

Concept introduction:

The balance of trade (BOT) is the difference between the value of a country's imports and its exports for a given period. A trade surplus (a surplus in the balance of trade) occurs when the value of a country's exports exceeds that of its imports. A trade deficit (also called a trade gap) occurs when imports exceed exports.

There are countries where it is almost certain that a trade deficit will occur. For example, the United States has had a trade deficit since 1976 because of its dependency on oil imports and consumer products.

Conversely, China, a country that produces and exports many of the world's consumable goods, has recorded a trade surplus since 1995.

A trade surplus or deficit is not always a viable indicator of an economy's health, and it must be considered in the context of the business cycle and other economic indicators. For example, in a recession, countries prefer to export more to create jobs and demand in the economy. In times of economic expansion, countries prefer to import more to promote price competition, which limits inflation. In 2017, Germany, Japan, China and South Korea had the largest trade surpluses by current account balance. The United States, the United Kingdom, Canada, and Turkey had the largest trade deficits.