What defines a trade deficit?

A trade deficit occurs when a country's imports exceed its exports. This means that the value of goods and services purchased from other countries is greater than the value of goods and services that the country sells to other countries. As a result, the country is spending more on foreign trade than it is earning, leading to a negative balance of trade. This is crucial in understanding trade dynamics, as a trade deficit can have various economic implications, such as influencing currency valuation, affecting local industries, and potentially leading to increased foreign debt.

In contrast, when exports exceed imports, it results in a trade surplus, which contributes positively to the economy. Borrowing money from abroad refers to foreign debt rather than trade balances, and higher national savings than investments does not directly pertain to trade deficits. Understanding how these elements interact helps clarify the broader economic landscape.