Trade Deficit:

A trade deficit is a situation in the balance of trade between a country's exports and imports. If the value of a country's imports exceeds the value of its exports, then that country is said to have a trade deficit. When the value of a country's exports exceeds the value of its exports, then it has a trade surplus. Trade deficits and surpluses may be measured in terms of the international trade between two nations, or between one nation and the rest of the world.

A variety of factors determine the size of a country's trade deficit or surplus. Since the balance of trade is measured by the value of imports and exports, the quantity of trade as well as its price affects the size of a particular trade deficit or surplus. When a country's currency is weak, for example, exports are valued lower and imports cost more, thus tending to increase the size of a trade deficit and reduce the size of a trade surplus.

The strength of a country's economy as well as the condition of the international economy also affects trade deficits and surpluses. When there is a worldwide recession, with a weakening of many countries' economies, there is a reduced demand for a given country's exports. A lower international demand for exports tends to increase a country's trade deficit. When a country's domestic economy is expanding, then that economy's demand for exports tends to increase, also tending to increase a country's trade deficit. Thus, an increasing trade deficit could be the result of a growing domestic economy, a worldwide recession, or a weak currency.

The current account balance of U.S. international transactions consists of four types of transactions: merchandise, services, investment income, and unilateral transfers. When the current account balance is positive, the United States has a trade surplus. When it is negative, there is a trade deficit.