Macroeconomics › Section J · International trade and capital flows › Topic J.5
Pros and cons of trade deficits and surpluses
Is a trade deficit a sign of weakness and a surplus a sign of strength? Once you see that a deficit means borrowing and a surplus means lending, the honest answer becomes: it depends on what the money is used for, and on how it is borrowed.
In this topic
- The real question
- When borrowing makes sense
- Deficits that worked
- Worked example: does the loan pay?
- Trouble one: unproductive borrowing
- Trouble two: the sudden stop
- Worked example: borrowing in a foreign currency
- Surpluses are no guarantee
- The US case
- Common mistakes to avoid
- Key takeaways
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