What describes a trade deficit?

A trade deficit arises when a country's imports exceed its exports, meaning that the value of goods and services imported is greater than the value of those exported. This situation indicates that the country is buying more from abroad than it is selling to other countries, which can have various economic implications. For example, persistent trade deficits might lead to increased borrowing from foreign lenders or a buildup of debt if the imports are financed through loans.

The balance of trade is a key indicator of a nation's economic health, reflecting how it interacts in the global market. In contrast, a surplus of exports over imports describes a trade surplus, which contributes positively to a country's gross domestic product (GDP). A balance of trade indicates that exports and imports are equal, leading to a neutral impact on the balance of trade. A decrease in national currency value, or depreciation, can influence trade deficits by making exports cheaper for foreign buyers; however, this scenario does not directly describe what a trade deficit is.