The global economy will always have some deficit countries and some surplus countries
Balance of payments and the standard of living
Especially for a developing country, a trade deficit can bring benefits. Economists might justify a trade deficit by arguing that poorer nations should be importing capital by running a current-account deficit. Providing productive investments are made, this gives a country the extra capital to drive future GDP growth so it can pay the foreigners back.
Balance of Payments and Aggregate Demand
A Balance of Payments Crisis
A BoP crisis occurs when a country cannot pay for essential imports or service its debt (i.e. pay interest), often as a result of currency devaluation; usually preceded by large capital inflows in order to boost growth but then investors get worried about their debt and remove their capital.
What are the Key Dangers from running Persistent Trade Deficits?
Many countries operate with a trade and current account surplus – good examples are China, Germany, Japan, Norway and several emerging market countries with strong export sectors.
A country with a surplus on the current account sees capital outflows of the same amount. This capital is either deposited in banks overseas or used to purchase foreign assets, from government bonds to companies, leading to an increase in the surplus nation's ownership of foreign assets.
What are the Main Causes of Structural Trade Surpluses?
There are several causes of a trade surplus and each country will have a unique set of circumstances:
Significance of Current Account Surpluses