What is a trade deficit and how does it affect a country’s economy?

A trade deficit occurs when a country imports more goods and services than it exports, leading to an outflow of money from the economy. While a trade deficit can signal strong domestic demand and a prosperous economy, it can also lead to increased borrowing or reliance on foreign capital. Over time, persistent trade deficits can result in higher levels of national debt and weaken a country’s currency. However, some economists argue that a trade deficit is not necessarily harmful if the borrowed funds are used for productive investments. The impact of a trade deficit depends on its size and how it is financed.