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Finance Glossary

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Over 700 finance terms, Shmooped to perfection.

Trade Deficit

Definition:

A bad thing that happens when the imports from a country are higher than our exports to that country. There's an imbalance, and that country profits more because they make more money on the trade.

Example

For decades, America gathered most of the natural resources it needed to build cars... from America. We made our own steel, tires, leather, rear-view mirror fuzzy dice, etc. We then sold that car to Europeans and Asians and made a friendly killing. We had balanced trade in those days where we were King of the Castle. 

Then bad things happened. We lost our dominance in the auto industry; our cost of labor skyrocketed relative to that in emerging countries, so we lost a lot of our industries; and we never even made it to the finals of the World Cup. 

Today, more wealth leaves the U.S.—buying things from China and other countries—than wealth comes in. Translation: We have a trade deficit with China.