BUS 626 W6D2

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Ashford University *

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626

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Economics

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Jan 9, 2024

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Uploaded by cc0909n

The balance on goods and services is when the balance of service exports and imports is added to the balance of merchandise trade. When the value of the country’s exports is taken from its investment earnings and the value of its current imports combined with the earnings of foreigners on domestic assets is known as the balance on current accounts (Gwartney et al, 2022, pg 390-391). As the U.S. is in a trade deficit, there are more imports coming into the country than are being exported. A way to oversimplify looking at this is that a prolonged level of activity at this deficit would decrease GDP, show a decline in job creation, and overall negate the potential for economic growth. However, many things have been shown to affect the size of trade deficits which can include factors such as: more government spending that increases the federal budget deficit/reduces the national savings rate, the exchange rate of a dollar (stronger valuation makes it easier to buy foreign goods), and a growing economy will generally increase the trade deficit as there is more money to spend (McBride & Chatzky, 2019). Many economists seem to believe that the trade deficit is unfairly blamed, that the growing deficit is the result of a growing economy. This allows the U.S. to provide a “liquidity to the global economy” which can be critical to global economic stability. In fact, some believe moving more towards a trade surplus could decrease global growth and stability among trade partners. Creating policy to protect certain industries should not be the priority, rather policy should help drive giving people the skills for a world that continues to evolve (McBride & Chatzky, 2019). Trying to install a form of protectionism may only cause a downstream negative effect that leaves everyone worse off. Rather than looking at the deficit as inherently “good” or “bad,” it is more recognized that it exists with certain trade- offs. References Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2022). Macroeconomics: Private and public choice (17th ed.). Cengage Learning. McBride, J., & Chatzky, A. (2019, March 8). The U.S. Trade Deficit: How Much Does It Matter? Council on Foreign Relations. https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does-it- matter

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