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    Trade Deficits

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    The United States has been operating on a trade deficit over three decades because Americans tend to buy more imports instead of domestically produced goods. Do you think Americans should continue this pattern? Why, or why not? Explain your rationale.

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    Solution Preview

    This is an interesting question that can be answered from different perspectives.

    The reason for trade deficits is that for some goods, other countries are producing higher priced goods cheaper, and/or better and/or faster (i,e, more efficiently) than the U.S. This is called sectoral comparative advantage. i.e. In certain sectors of the economy, other countries are able to provide either higher quality or less expensive goods(e.g. automobiles, computers, cell-phones) that consumers value. Now your question is "should" Americans continue this pattern? From the American ...

    Solution Summary

    There are different perspectives regarding trade deficits. But the overriding one is the consumer's. Trade deficits are not a bad thing if ultimately domestic consumer's can buy cheaper imports and thus have more money for savings and domestic investment.