Understanding the Evolution of Trade Deficits: Trade Elasticities of Industrialized Countries
In 2006, Americans bought $1,928 billion of goods and services produced in foreign countries. In the same year, American sales of goods and services to foreigners amounted to only $1,304 billion. The difference between American exports and imports of $624 billion is known as the trade deficit. When this number is positive—that is, when the U.S. sells more to foreign countries than it buys—it is called a trade surplus. More generally, the difference between the value of a country’s exports and imports is known as the trade balance. Over the past several years, the U.S. trade deficit has attracted a great deal of attention in the popular press and among policymakers in Washington, DC. Why is there so much interest in the trade deficit?