Question

What is the difference between trade deficits and balance of trade?

Short answer

Trade deficit is when imports exceed exports.

Balance of trade is the difference between the exports and imports.

Step-by-step solution

Step1. Introduction

Imports refer to the buying of goods/services from the foreign countries.

Exports refer to the selling of goods/services to the foreign countries.

Step2. Explanation

Balance of trade refers to the difference between exports and imports. This difference can be negative as well as positive.

A situation of Balance of Trade is Trade Deficit, i.e. when the difference between exports and imports is negative, or in other words when imports exceed exports.