Is a trade deficit good or bad?
A trade deficit doesn't take care of itself forever.
- Source E: Is the U.S. trade deficit a problem? What is the link between the trade deficit and exchange rates? -Since foreigners/foreign governments are willing to lend us huge sums of money, America can maintain a trade deficit for some time. But, America will stop receiving easy credit, and will then have to pay its way in the world's economy. -Evidence supported by: Paul Krugman (2005)
A trade deficit means a surplus in capital
-Source B: That China Trade Deficit Comes Back To The US: $110 Billion Into Real Estate Alone -The U.S. dollars flow back into our economy since other countries have no use for our currency. When the Chinese buyer returns our currency (or bond, or stock, or land etc), it is used by an American into our economy again.
The trade deficit weakens the value of the dollar
-Source F: Why does a trade deficit weaken the currency? -In order to get a trade surplus from a trade deficit, you must export more than you import. The dollar has to depreciate in order for a trade surplus to occur. However, this increases the prices of imports for Americans while exports become cheaper for foreigners. If trade deficits are sufficiently large and unable to be controlled at a constant rate, economists believe that the dollar will depreciate in the future, leading to inflation.
A trade deficit can negatively effect your country is not properly handled
-Source F: Why does a trade deficit weaken the currency?-The trade deficit requires financing by foreigners. Foreigners lend/invest sums of money into the U.S. to finance our trade deficit, for example they purchase property or businesses. In order for foreign financers to be refunded of their investment, the trade deficit must become a trade surplus, so that the foreigners get paid back. If not, we will go into greater debt, lose jobs, go into inflation and lose investors.
My POV
A trade deficit has both positives and negatives, positives being only a few. These negative and/or positives depends on how long the deficit has occurred or even what the country does with your money/what you do with their money once it's invested in the economy. However, a trade deficit can have much more of a negative effect on our economy if it isn't taken care of.
