Trade remains a hot issue. China throws our country a bone by buying several shiploads of soybeans; the stock market reacts, or over-reacts, to news on the progress, or lack thereof, in U.S.-China trade negotiations; and the question arises of whether the Federal Reserve, or any central bank, can or should act to offset the impacts trade disputes even if central bankers think them bad policy. But public understanding of trade economics, and even trade terms, remains limited, as evidenced by emails from readers. A review of the basics is useful. Trade historically consists of sales of physical goods across national borders. Sales from businesses in one country to those in another nation are exports from the first country and imports to the second. Aggregate values of these sales are tabulated in a national “balance of trade.” If Canadian exporters sell more to the Netherlands than Canada’s importers buy from that European nation, then Canada is said to have a balance-of-trade “surplus.” The Netherlands has a “deficit.”To economists, there is nothing inherently good or bad about a surplus or deficit between any pair of countries. But to many in the general public a surplus must be good and a deficit… Read full this story
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