Question

Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

Short answer

It is not possible that a country should strive for both a trade surplus and a healthy inflow of capital from abroad.

Step-by-step solution

Step 1. Introduction

A trade surplus is an economic indicator indicating a positive trade balance in which a country's exports exceed its imports.

Capital Inflow refers to money moving in a certain befitting nation.

Step 2. Explanation

When a country has a trade surplus, domestic capital flows into the economy due to an excess of exports over imports, while financial capital flows out of the domestic economy to the rest of the world. Only when a country's trade balance is in deficit can it see inflows of financial capital.

As a result, both a trade surplus and a financial capital inflow are economically impossible.