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Trade Surplus vs Trade Deficit - What are the Differences?

What is Trade Surplus?

When the total value of a country’s exports exceeds the total imports value of that country, then it is called 'Trade Surplus'.

What is Trade Deficit?

When the total value of a country’s imports exceeds the total exports value of that country, then it is called 'Trade Deficit'.

Which is better Trade Surplus or Trade Deficit?

• It is better for a country to have a trade surplus rather than having a higher trade deficit.

• But it won't be wise to say that the country should stop or greatly bring down its imports in order to avoid Trade deficit.

• The reason being is because: sometimes it may be necessary for industrial institutions to import some raw materials or machinery etc to produce the goods.

• In this case, those industrial institutions are importing from a company outside the country because of either of the following reasons:
(1) the domestic companies are charging a very high price for the required raw materials, machinery, etc; or
(2) the raw materials, machinery, etc needed are quite scarce in their country.

• Hence, in order to continue the production activity, the imports may become an integral part of the whole business process for those industries or companies.

• Here, you have to understand that although the country might be losing currency value because of the Trade Deficit, still it is essential for the industrial production and meeting the demands of the consumers in the country.

• The countries, who are facing trade deficits should explore the chances of getting the raw materials from the natural resources available in the country or in case of imports of high-end machinery, more and more R&D should be conducted in-house to manufacture such high-end machinery, etc.

• The Government of such countries could also provide subsidies to sectors facing the scarcity in order to promote and achieve the object as soon as possible.