TRADE DEFICIT:

Finweek English Edition - - MONEY -

a coun­try’s bal­ance of trade will ref lect ei­ther a sur­plus or deficit. If a trade deficit is shown, it sig­ni­fies that im­ports ex­ceed that coun­try’s ex­ports.

There are more ways of mea­sur­ing a coun­try’s f is­cal health, but the trade ac­count is of­ten an en­light­en­ing one. It is here that vi­tal in­di­ca­tors, such as the coun­try’s cur­rent ac­count, ex­ter­nal debt, ex­ports and im­ports and bal­ance of trade are ref lected. It is the lat­ter, the bal­ance of trade, which will in­di­cate ei­ther a sur­plus or deficit, that is of­ten a re­veal­ing in­dic­tor.

To fur­ther com­pli­cate mat­ters, the cur­rent ac­count deficit and trade deficit are of­ten ad­dressed as one and the same, how­ever, there is a dif­fer­ence. While a trade bal­ance de­scribes the dif­fer­ence in value be­tween ex­ports and im­ports, the cur­rent ac­count (used as a broad mea­sure of the trade bal­ance) is the trade bal­ance plus the amounts re­ceived for lo­cally owned items or pro­duc­tion used abroad.

What a cur­rent ac­count deficit es­sen­tially tells us is that the to­tal im­ports of goods and ser­vices are greater than the coun­try’s ex­ports, re­sult­ing in the coun­try in­cur­ring debt. This, how­ever, does not nec­es­sar­ily raise a red f lag. In fact, many First-World coun­tries run deficits as this al­lows them to con­cen­trate on de­vel­op­ment and in­no­va­tion while out­sourc­ing pro­duc­tion. Emerg­ing-mar­ket coun­tries also run deficits to al­low for growth in lo­cal pro­duc­tiv­ity with a view of fu­ture gains from ex­ports. This in turn should then have a pos­i­tive ef­fect on the trade bal­ance and as­sist in bring­ing the deficit down.

A trade deficit is a neg­a­tive bal­ance of trade − think of this as be­ing in the red. It means that a coun­try’s im­ports ex­ceed it s ex­ports, cre­at­ing an outf l ow of do­mes­tic cur­rency to for­eign mar­kets. Coun­tries that are un­able to pro­duce all the goods they need of­ten suf­fer from a trade deficit.

At the other end of the spec­trum is the trade sur­plus or pos­i­tive bal­ance of trade (in ac­count­ing speak: be­ing in the black; a good thing). In this sce­nario, a coun­try’s ex­ports ex­ceed its i mports al­low­ing for an inf low of cash from for­eign mar­kets. A coun­try with a trade sur­plus has far more con­trol over the health of its own cur­rency, as it is un­likel y to be af­fected by global sel l i ng. Ex­change rates are a crit­i­cal fac­tor on any coun­try’s trad­ing plat­form and a low ex­change rate is a ma­jor fac­tor to in­creas­ing the bal­ance of trade.

Why, you may ask, do many FirstWorld coun­tries also have a trade deficit? To draw an anal­ogy, it’s sim­i­lar to that credit card you have: re­volv­ing credit – us­ing some­one else’s money to be able to do the things you want or need to do, now. So, hav­ing a deficit does not nec­es­sar­ily mean you are the runt of the lit­ter, but the higher your neg­a­tive cur­rent ac­count bal­ance is, as a per­cent­age of GDP, it may put you in this cat­e­gory.

HOW DOES

The lat­est bal­ance of trade f ig­ures for South Africa is cause to sit up and take no­tice. SARS re­ported a trade deficit of over R19bn in Au­gust 2013, up by nearly R6bn from July’s fig­ures, and climb­ing steadily to­wards SA’s all-time high f ig­ure of R24.5bn posted in Jan­uary of this year. Even more con­cern­ing is the short turn­around time (less than three years) from a healthy sur­plus of R10bn posted in De­cem­ber 2010. The lat­est trade deficit fig­ure is at­trib­uted mainly to a fall in ex­ports as well as an in­crease in im­ports. Over­all, ex­ports were down by 7.6% with

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