{"id":373,"date":"2018-04-05T01:14:20","date_gmt":"2018-04-05T01:14:20","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/os-macroecon-e2\/chapter\/the-difference-between-level-of-trade-and-the-trade-balance\/"},"modified":"2018-05-08T14:52:41","modified_gmt":"2018-05-08T14:52:41","slug":"the-difference-between-level-of-trade-and-the-trade-balance","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-macroeconomics2\/chapter\/the-difference-between-level-of-trade-and-the-trade-balance\/","title":{"raw":"The Difference between Level of Trade and the Trade Balance","rendered":"The Difference between Level of Trade and the Trade Balance"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul>\r\n \t<li>Identify three factors that influence a country's level of trade<\/li>\r\n \t<li>Differentiate between balance of trade and level of trade<\/li>\r\n<\/ul>\r\n<\/div>\r\n<p id=\"fs-idm30303168\">A nation\u2019s <em>level<\/em> of trade may at first sound like much the same issue as the <em>balance<\/em> of trade, but these two are actually quite separate. It is perfectly possible for a country to have a very high <strong><span class=\"no-emphasis\">level of trade<\/span><\/strong>\u2014measured by its exports of goods and services as a share of its GDP\u2014while it also has a near-balance between exports and imports. A high level of trade indicates that the nation exports a good portion of its production. It is also possible for a country\u2019s trade to be a relatively low share of GDP, relative to global averages, but for the imbalance between its exports and its imports to be quite large. We emphasized this general theme earlier in <a href=\"https:\/\/courses.lumenlearning.com\/suny-macroeconomics2\/chapter\/measuring-trade-balances\/\">Measuring Trade Balances<\/a>, which offered some illustrative figures on trade levels and balances.<\/p>\r\n<p id=\"fs-idp33673552\">A country\u2019s level of trade tells how much of its production it exports. We measure this by the percent of exports out of GDP. It indicates the degree of an economy's globalization. Some countries, such as Germany, have a high level of trade\u2014they export almost 50% of their total production. The balance of trade tells us if the country is running a trade surplus or trade deficit. A country can have a low level of trade but a high trade deficit. (For example, the United States only exports 13% of GDP, but it has a trade deficit of over $500 billion.)<\/p>\r\n<p id=\"fs-idm41128176\">Three factors strongly influence a nation\u2019s level of trade: the size of its economy, its geographic location, and its history of trade. Large economies like the United States can do much of their trading internally, while small economies like Sweden have less ability to provide what they want internally and tend to have higher ratios of exports and imports to GDP. Nations that are neighbors tend to trade more, since costs of transportation and communication are lower. Moreover, some nations have long and established patterns of international trade, while others do not.<\/p>\r\n<p id=\"fs-idp92440384\">Consequently, a relatively small economy like Sweden, with many nearby trading partners across Europe and a long history of foreign trade, has a high level of trade. Brazil and India, which are fairly large economies that have often sought to inhibit trade in recent decades, have lower levels of trade; whereas, the United States and Japan are extremely large economies that have comparatively few nearby trading partners. Both countries actually have quite low levels of trade by world standards. The ratio of exports to GDP in either the United States or in Japan is about half of the world average.<\/p>\r\n<p id=\"fs-idm13569616\">The <strong><span class=\"no-emphasis\">balance of trade<\/span><\/strong> is a separate issue from the level of trade. The United States has a low level of trade, but had enormous trade deficits for most years from the mid-1980s into the 2000s. Japan has a low level of trade by world standards, but has typically shown large trade surpluses in recent decades. Nations like Germany and the United Kingdom have medium to high levels of trade by world standards, but Germany had a moderate trade surplus in 2015, while the United Kingdom had a moderate trade deficit. Their trade picture was roughly in balance in the late 1990s. Sweden had a high level of trade and a moderate trade surplus in 2015, while Mexico had a high level of trade and a moderate trade deficit that same year.<\/p>\r\n<p id=\"fs-idp6333168\">In short, it is quite possible for nations with a relatively low level of trade, expressed as a percentage of GDP, to have relatively large trade deficits. It is also quite possible for nations with a near balance between exports and imports to worry about the consequences of high levels of trade for the economy. It is not inconsistent to believe that a high level of trade is potentially beneficial to an economy, because of the way it allows nations to play to their comparative advantages, and to also be concerned about any macroeconomic instability caused by a long-term pattern of large trade deficits. The following Clear It Up feature discusses how this sort of dynamic played out in Colonial India.<\/p>\r\n\r\n<div id=\"fs-idm158149456\" class=\"economics clearup\">\r\n<div>\r\n<div class=\"textbox shaded\">\r\n<h4>Are trade surpluses always beneficial? Considering Colonial India.<\/h4>\r\n<p id=\"fs-idm75163584\">India was formally under British rule from 1858 to 1947. During that time, India consistently had trade surpluses with Great Britain. Anyone who believes that trade surpluses are a sign of economic strength and dominance while trade deficits are a sign of economic weakness must find this pattern odd, since it would mean that colonial India was successfully dominating and exploiting Great Britain for almost a century\u2014which was not true.<\/p>\r\n<p id=\"fs-idm41799872\">Instead, India\u2019s trade surpluses with Great Britain meant that each year there was an overall flow of financial capital from India to Great Britain. In India, many heavily criticized this financial capital flow as the \"drain,\" and they viewed eliminating the financial capital drain as one of the many reasons why India would benefit from achieving independence.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<section id=\"fs-idm136851296\">\r\n<h3>Final Thoughts about Trade Balances<\/h3>\r\n<p id=\"fs-idm131020400\">Trade deficits can be a good or a bad sign for an economy, and trade surpluses can be a good or a bad sign. Even a trade balance of zero\u2014which just means that a nation is neither a net borrower nor lender in the international economy\u2014can be either a good or bad sign. The fundamental economic question is not whether a nation\u2019s economy is borrowing or lending at all, but whether the particular borrowing or lending in the particular economic conditions of that country makes sense.<\/p>\r\n<p id=\"fs-idm77466272\">It is interesting to reflect on how public attitudes toward trade deficits and surpluses might change if we could somehow change the labels that people and the news media affix to them. If we called a trade deficit \"attracting foreign financial capital\"\u2014which accurately describes what a trade deficit means\u2014then trade deficits might look more attractive. Conversely, if we called a trade surplus \"shipping financial capital abroad\"\u2014which accurately captures what a trade surplus does\u2014then trade surpluses might look less attractive. Either way, the key to understanding trade balances is to understand the relationships between flows of trade and flows of international payments, and what these relationships imply about the causes, benefits, and risks of different kinds of trade balances. The first step along this journey of understanding is to move beyond knee-jerk reactions to terms like \"trade surplus,\" \"trade balance,\" and \"trade deficit.\"<\/p>\r\n\r\n<div id=\"fs-idm103286864\" class=\"economics bringhome\">\r\n<div>\r\n<div class=\"textbox shaded\"><section id=\"fs-idm136851296\">\r\n<div id=\"fs-idm103286864\" class=\"economics bringhome\">\r\n<h4>More than Meets the Eye in the Congo<\/h4>\r\n<p id=\"fs-idm3788912\">Now that you see the big picture, you undoubtedly realize that all of the economic choices you make, such as depositing savings or investing in an international mutual fund, do influence the flow of goods and services as well as the flows of money around the world.<\/p>\r\n<p id=\"fs-idm39514704\">You now know that a trade surplus does not necessarily tell us whether an economy is performing well or not. The Democratic Republic of the Congo ran a trade surplus in 2013, as we learned in the beginning of the chapter. Yet its current account balance was \u2013$2.8 billion. However, the return of political stability and the rebuilding in the aftermath of the civil war there has meant a flow of investment and financial capital into the country. In this case, a negative current account balance means the country is being rebuilt\u2014and that is a good thing.<\/p>\r\n\r\n<\/div>\r\n<\/section><\/div>\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Key Concepts and Summary<\/h3>\r\n<section id=\"fs-idm119678800\" class=\"summary\">\r\n<p id=\"fs-idm73196240\">There is a difference between the level of a country\u2019s trade and the balance of trade. The government measures its level of trade by the percentage of exports out of GDP, or the size of the economy. Small economies that have nearby trading partners and a history of international trade will tend to have higher levels of trade. Larger economies with few nearby trading partners and a limited history of international trade will tend to have lower levels of trade. The level of trade is different from the trade balance. The level of trade depends on a country\u2019s history of trade, its geography, and the size of its economy. A country\u2019s balance of trade is the dollar difference between its exports and imports.<\/p>\r\n<p id=\"fs-idm5729552\">Trade deficits and trade surpluses are not necessarily good or bad\u2014it depends on the circumstances. Even if a country is borrowing, if it invests that money in productivity-boosting investments it can lead to an improvement in long-term economic growth.<\/p>\r\n\r\n<\/section><\/div>\r\n<\/div>\r\n<\/div>\r\n<\/section><section id=\"fs-idp43002800\" class=\"self-check-questions\">\r\n<div class=\"textbox exercises\">\r\n<h3>Self-Check Questions<\/h3>\r\n<section id=\"fs-idp43002800\" class=\"self-check-questions\">\r\n<div id=\"fs-idp48233616\">\r\n<div id=\"fs-idm3381792\">\r\n<p id=\"fs-idm33187936\">The United States exports 14% of GDP while Germany exports about 50% of its GDP. Explain what that means.<\/p>\r\n[reveal-answer q=\"901034\"]Show Solution[\/reveal-answer]\r\n[hidden-answer a=\"901034\"]Germany has a higher level of trade than the United States. The United States has a large domestic economy so it has a large volume of internal trade.[\/hidden-answer]\r\n\r\n<\/div>\r\n<div id=\"fs-idm47375344\"><\/div>\r\n<\/div>\r\n<div id=\"fs-idp24767152\">\r\n<div id=\"fs-idp81990720\">\r\n<p id=\"fs-idm24414288\">Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.<\/p>\r\n\r\n<ol id=\"fs-idp80638992\" type=\"a\">\r\n \t<li>Living in an especially large country<\/li>\r\n \t<li>Having a domestic investment rate much higher than the domestic savings rate<\/li>\r\n \t<li>Having many other large economies geographically nearby<\/li>\r\n \t<li>Having an especially large budget deficit<\/li>\r\n \t<li>Having countries with a tradition of strong protectionist legislation shutting out imports<\/li>\r\n<\/ol>\r\n[reveal-answer q=\"659515\"]Show Solution[\/reveal-answer]\r\n[hidden-answer a=\"659515\"]a. A large economy tends to have lower levels of international trade, because it can do more of its trade internally, but this has little impact on its trade imbalance.\r\n\r\nb. An imbalance between domestic physical investment and domestic saving (including government and private saving) will always lead to a trade imbalance, but has little to do with the level of trade.\r\n\r\nc. Many large trading partners nearby geographically increases the level of trade, but has little impact one way or the other on a trade imbalance.\r\n\r\nd. The answer here is not obvious. An especially large budget deficit means a large demand for financial capital which, according to the national saving and investment identity, makes it somewhat more likely that there will be a need for an inflow of foreign capital, which means a trade deficit.\r\n\r\ne. A strong tradition of discouraging trade certainly reduces the level of trade. However, it does not necessarily say much about the balance of trade, since this is determined by both imports and exports, and by national levels of physical investment and savings.[\/hidden-answer]\r\n\r\n&nbsp;\r\n\r\n<\/div>\r\n<div id=\"fs-idm24791632\">\r\n\r\n&nbsp;\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><section id=\"fs-idp16929568\" class=\"review-questions\">\r\n<h3>Review Questions<\/h3>\r\n<div id=\"fs-idp61029952\">\r\n<div id=\"fs-idm51486784\">\r\n<p id=\"fs-idp5055568\">What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm62533456\">\r\n<div id=\"fs-idp64577280\">\r\n<p id=\"fs-idm50460752\">What is the difference between trade deficits and balance of trade?<\/p>\r\n&nbsp;\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><section id=\"fs-idm39286624\" class=\"critical-thinking\">\r\n<h3>Critical Thinking Questions<\/h3>\r\n<div id=\"fs-idm101555760\">\r\n<div id=\"fs-idm42259744\">\r\n<p id=\"fs-idm95615808\">Will nations that are more involved in foreign trade tend to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm71700976\">\r\n<div id=\"fs-idm188128096\">\r\n<p id=\"fs-idm203354336\">Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><\/div>\r\n<\/section>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul>\n<li>Identify three factors that influence a country&#8217;s level of trade<\/li>\n<li>Differentiate between balance of trade and level of trade<\/li>\n<\/ul>\n<\/div>\n<p id=\"fs-idm30303168\">A nation\u2019s <em>level<\/em> of trade may at first sound like much the same issue as the <em>balance<\/em> of trade, but these two are actually quite separate. It is perfectly possible for a country to have a very high <strong><span class=\"no-emphasis\">level of trade<\/span><\/strong>\u2014measured by its exports of goods and services as a share of its GDP\u2014while it also has a near-balance between exports and imports. A high level of trade indicates that the nation exports a good portion of its production. It is also possible for a country\u2019s trade to be a relatively low share of GDP, relative to global averages, but for the imbalance between its exports and its imports to be quite large. We emphasized this general theme earlier in <a href=\"https:\/\/courses.lumenlearning.com\/suny-macroeconomics2\/chapter\/measuring-trade-balances\/\">Measuring Trade Balances<\/a>, which offered some illustrative figures on trade levels and balances.<\/p>\n<p id=\"fs-idp33673552\">A country\u2019s level of trade tells how much of its production it exports. We measure this by the percent of exports out of GDP. It indicates the degree of an economy&#8217;s globalization. Some countries, such as Germany, have a high level of trade\u2014they export almost 50% of their total production. The balance of trade tells us if the country is running a trade surplus or trade deficit. A country can have a low level of trade but a high trade deficit. (For example, the United States only exports 13% of GDP, but it has a trade deficit of over $500 billion.)<\/p>\n<p id=\"fs-idm41128176\">Three factors strongly influence a nation\u2019s level of trade: the size of its economy, its geographic location, and its history of trade. Large economies like the United States can do much of their trading internally, while small economies like Sweden have less ability to provide what they want internally and tend to have higher ratios of exports and imports to GDP. Nations that are neighbors tend to trade more, since costs of transportation and communication are lower. Moreover, some nations have long and established patterns of international trade, while others do not.<\/p>\n<p id=\"fs-idp92440384\">Consequently, a relatively small economy like Sweden, with many nearby trading partners across Europe and a long history of foreign trade, has a high level of trade. Brazil and India, which are fairly large economies that have often sought to inhibit trade in recent decades, have lower levels of trade; whereas, the United States and Japan are extremely large economies that have comparatively few nearby trading partners. Both countries actually have quite low levels of trade by world standards. The ratio of exports to GDP in either the United States or in Japan is about half of the world average.<\/p>\n<p id=\"fs-idm13569616\">The <strong><span class=\"no-emphasis\">balance of trade<\/span><\/strong> is a separate issue from the level of trade. The United States has a low level of trade, but had enormous trade deficits for most years from the mid-1980s into the 2000s. Japan has a low level of trade by world standards, but has typically shown large trade surpluses in recent decades. Nations like Germany and the United Kingdom have medium to high levels of trade by world standards, but Germany had a moderate trade surplus in 2015, while the United Kingdom had a moderate trade deficit. Their trade picture was roughly in balance in the late 1990s. Sweden had a high level of trade and a moderate trade surplus in 2015, while Mexico had a high level of trade and a moderate trade deficit that same year.<\/p>\n<p id=\"fs-idp6333168\">In short, it is quite possible for nations with a relatively low level of trade, expressed as a percentage of GDP, to have relatively large trade deficits. It is also quite possible for nations with a near balance between exports and imports to worry about the consequences of high levels of trade for the economy. It is not inconsistent to believe that a high level of trade is potentially beneficial to an economy, because of the way it allows nations to play to their comparative advantages, and to also be concerned about any macroeconomic instability caused by a long-term pattern of large trade deficits. The following Clear It Up feature discusses how this sort of dynamic played out in Colonial India.<\/p>\n<div id=\"fs-idm158149456\" class=\"economics clearup\">\n<div>\n<div class=\"textbox shaded\">\n<h4>Are trade surpluses always beneficial? Considering Colonial India.<\/h4>\n<p id=\"fs-idm75163584\">India was formally under British rule from 1858 to 1947. During that time, India consistently had trade surpluses with Great Britain. Anyone who believes that trade surpluses are a sign of economic strength and dominance while trade deficits are a sign of economic weakness must find this pattern odd, since it would mean that colonial India was successfully dominating and exploiting Great Britain for almost a century\u2014which was not true.<\/p>\n<p id=\"fs-idm41799872\">Instead, India\u2019s trade surpluses with Great Britain meant that each year there was an overall flow of financial capital from India to Great Britain. In India, many heavily criticized this financial capital flow as the &#8220;drain,&#8221; and they viewed eliminating the financial capital drain as one of the many reasons why India would benefit from achieving independence.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<section id=\"fs-idm136851296\">\n<h3>Final Thoughts about Trade Balances<\/h3>\n<p id=\"fs-idm131020400\">Trade deficits can be a good or a bad sign for an economy, and trade surpluses can be a good or a bad sign. Even a trade balance of zero\u2014which just means that a nation is neither a net borrower nor lender in the international economy\u2014can be either a good or bad sign. The fundamental economic question is not whether a nation\u2019s economy is borrowing or lending at all, but whether the particular borrowing or lending in the particular economic conditions of that country makes sense.<\/p>\n<p id=\"fs-idm77466272\">It is interesting to reflect on how public attitudes toward trade deficits and surpluses might change if we could somehow change the labels that people and the news media affix to them. If we called a trade deficit &#8220;attracting foreign financial capital&#8221;\u2014which accurately describes what a trade deficit means\u2014then trade deficits might look more attractive. Conversely, if we called a trade surplus &#8220;shipping financial capital abroad&#8221;\u2014which accurately captures what a trade surplus does\u2014then trade surpluses might look less attractive. Either way, the key to understanding trade balances is to understand the relationships between flows of trade and flows of international payments, and what these relationships imply about the causes, benefits, and risks of different kinds of trade balances. The first step along this journey of understanding is to move beyond knee-jerk reactions to terms like &#8220;trade surplus,&#8221; &#8220;trade balance,&#8221; and &#8220;trade deficit.&#8221;<\/p>\n<div id=\"fs-idm103286864\" class=\"economics bringhome\">\n<div>\n<div class=\"textbox shaded\">\n<section id=\"fs-idm136851296\">\n<div id=\"fs-idm103286864\" class=\"economics bringhome\">\n<h4>More than Meets the Eye in the Congo<\/h4>\n<p id=\"fs-idm3788912\">Now that you see the big picture, you undoubtedly realize that all of the economic choices you make, such as depositing savings or investing in an international mutual fund, do influence the flow of goods and services as well as the flows of money around the world.<\/p>\n<p id=\"fs-idm39514704\">You now know that a trade surplus does not necessarily tell us whether an economy is performing well or not. The Democratic Republic of the Congo ran a trade surplus in 2013, as we learned in the beginning of the chapter. Yet its current account balance was \u2013$2.8 billion. However, the return of political stability and the rebuilding in the aftermath of the civil war there has meant a flow of investment and financial capital into the country. In this case, a negative current account balance means the country is being rebuilt\u2014and that is a good thing.<\/p>\n<\/div>\n<\/section>\n<\/div>\n<div class=\"textbox key-takeaways\">\n<h3>Key Concepts and Summary<\/h3>\n<section id=\"fs-idm119678800\" class=\"summary\">\n<p id=\"fs-idm73196240\">There is a difference between the level of a country\u2019s trade and the balance of trade. The government measures its level of trade by the percentage of exports out of GDP, or the size of the economy. Small economies that have nearby trading partners and a history of international trade will tend to have higher levels of trade. Larger economies with few nearby trading partners and a limited history of international trade will tend to have lower levels of trade. The level of trade is different from the trade balance. The level of trade depends on a country\u2019s history of trade, its geography, and the size of its economy. A country\u2019s balance of trade is the dollar difference between its exports and imports.<\/p>\n<p id=\"fs-idm5729552\">Trade deficits and trade surpluses are not necessarily good or bad\u2014it depends on the circumstances. Even if a country is borrowing, if it invests that money in productivity-boosting investments it can lead to an improvement in long-term economic growth.<\/p>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<section id=\"fs-idp43002800\" class=\"self-check-questions\">\n<div class=\"textbox exercises\">\n<h3>Self-Check Questions<\/h3>\n<section id=\"fs-idp43002800\" class=\"self-check-questions\">\n<div id=\"fs-idp48233616\">\n<div id=\"fs-idm3381792\">\n<p id=\"fs-idm33187936\">The United States exports 14% of GDP while Germany exports about 50% of its GDP. Explain what that means.<\/p>\n<div class=\"qa-wrapper\" style=\"display: block\"><span class=\"show-answer collapsed\" style=\"cursor: pointer\" data-target=\"q901034\">Show Solution<\/span><\/p>\n<div id=\"q901034\" class=\"hidden-answer\" style=\"display: none\">Germany has a higher level of trade than the United States. The United States has a large domestic economy so it has a large volume of internal trade.<\/div>\n<\/div>\n<\/div>\n<div id=\"fs-idm47375344\"><\/div>\n<\/div>\n<div id=\"fs-idp24767152\">\n<div id=\"fs-idp81990720\">\n<p id=\"fs-idm24414288\">Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.<\/p>\n<ol id=\"fs-idp80638992\" type=\"a\">\n<li>Living in an especially large country<\/li>\n<li>Having a domestic investment rate much higher than the domestic savings rate<\/li>\n<li>Having many other large economies geographically nearby<\/li>\n<li>Having an especially large budget deficit<\/li>\n<li>Having countries with a tradition of strong protectionist legislation shutting out imports<\/li>\n<\/ol>\n<div class=\"qa-wrapper\" style=\"display: block\"><span class=\"show-answer collapsed\" style=\"cursor: pointer\" data-target=\"q659515\">Show Solution<\/span><\/p>\n<div id=\"q659515\" class=\"hidden-answer\" style=\"display: none\">a. A large economy tends to have lower levels of international trade, because it can do more of its trade internally, but this has little impact on its trade imbalance.<\/p>\n<p>b. An imbalance between domestic physical investment and domestic saving (including government and private saving) will always lead to a trade imbalance, but has little to do with the level of trade.<\/p>\n<p>c. Many large trading partners nearby geographically increases the level of trade, but has little impact one way or the other on a trade imbalance.<\/p>\n<p>d. The answer here is not obvious. An especially large budget deficit means a large demand for financial capital which, according to the national saving and investment identity, makes it somewhat more likely that there will be a need for an inflow of foreign capital, which means a trade deficit.<\/p>\n<p>e. A strong tradition of discouraging trade certainly reduces the level of trade. However, it does not necessarily say much about the balance of trade, since this is determined by both imports and exports, and by national levels of physical investment and savings.<\/p><\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<\/div>\n<div id=\"fs-idm24791632\">\n<p>&nbsp;<\/p>\n<\/div>\n<\/div>\n<\/section>\n<section id=\"fs-idp16929568\" class=\"review-questions\">\n<h3>Review Questions<\/h3>\n<div id=\"fs-idp61029952\">\n<div id=\"fs-idm51486784\">\n<p id=\"fs-idp5055568\">What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idm62533456\">\n<div id=\"fs-idp64577280\">\n<p id=\"fs-idm50460752\">What is the difference between trade deficits and balance of trade?<\/p>\n<p>&nbsp;<\/p>\n<\/div>\n<\/div>\n<\/section>\n<section id=\"fs-idm39286624\" class=\"critical-thinking\">\n<h3>Critical Thinking Questions<\/h3>\n<div id=\"fs-idm101555760\">\n<div id=\"fs-idm42259744\">\n<p id=\"fs-idm95615808\">Will nations that are more involved in foreign trade tend to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idm71700976\">\n<div id=\"fs-idm188128096\">\n<p id=\"fs-idm203354336\">Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? 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