According to the argument discussed in class that if a developed nation imports, then such a nation will not have a trade deficit. True False
The correct answer and explanation is:
Correct Answer: False
Explanation:
The statement “if a developed nation imports, then such a nation will not have a trade deficit” is false because importing alone does not prevent a trade deficit — in fact, high levels of imports can contribute to it.
Understanding Trade Deficit:
A trade deficit occurs when a country imports more goods and services than it exports. This is measured using the balance of trade, a key component of a country’s current account. Trade Balance=Exports−Imports\text{Trade Balance} = \text{Exports} – \text{Imports}
If imports exceed exports, the trade balance is negative — resulting in a trade deficit.
Why the Statement is False:
- Importing is Common:
Developed nations routinely import goods, including raw materials, electronics, and consumer products. Importing helps meet domestic demand and support industries. - Trade Deficit Still Possible:
Even if a nation is economically advanced, if its imports outweigh its exports, it will still run a trade deficit. The United States, for example, is a developed country with one of the world’s largest economies, but it regularly runs large trade deficits due to high import volumes. - Trade Balance Depends on Both Sides:
Whether a country has a surplus or deficit depends on the net effect of both exports and imports, not just the fact that it imports.
Conclusion:
Importing does not automatically ensure a trade surplus or eliminate a trade deficit. A developed country can and often does have a trade deficit if it imports more than it exports. Therefore, the statement is false.