The Source of Trade Imbalances

The Source of Trade Imbalances Student’s Name Institutional Affiliation The Source of Trade Imbalances Neil Irwin makes interesting points regarding trade deficit. Irwin attempts to demystify the ever-growing $500 billion annual trade deficit that the US runs into annually. Irwin defines trade deficit a situation in which the value of a country’s imports exceed that of its exports. First, Irwin (2014) argues that trade deficits cannot conclusively be designated as good or bad. That can only be done after consideration of various circumstances. Irwin (2014) notes the big correlation between trade deficit, savings and investment. Other investment and savings decisions unrelated to trade between two countries can have an effect on trade deficit as well. Irwin posits that giving massive tax cuts lowers budget deficit and eventually the country’s savings rate thus leasing to an increase in trade deficit. With less valued imports against exports, trade deficit is likely to adversely affect a country’s GDP. Consequently, only ...