11.6 Balance of Trade and Globalization

Notes

• Balance of trade $=$ exports $-$ imports. A trade surplus means exports are greater than imports; a trade deficit means imports are greater than exports. The U.S. has had a trade deficit every year since 1976.
• The balance of payments records all transactions with other countries: the current account (trade in goods and services, plus income and transfers) and the financial account (investment flows, such as foreigners buying U.S. bonds or companies).
• Worked example: if exports are $2.0 trillion and imports are $2.8 trillion, the balance of trade is $2.0 - 2.8 = -0.8$, a deficit of $0.8 trillion.
• Economists disagree about how much a trade deficit matters. Some see it as a sign of strong consumer demand and foreign investment; others worry about lost manufacturing jobs and borrowing from abroad.
• Globalization is the growing connection of the world's economies through trade, investment, technology and migration. Multinational corporations produce and sell in many countries; outsourcing moves some work to other firms or countries.
• Developing countries have lower GDP per capita. Organizations such as the World Bank (loans for development) and the International Monetary Fund (help with financial crises), both created in 1944, work with them.