• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Portfolio on Trade Deficits

Extracts from this document...

Introduction

Trade deficit blows out as exports drop May 4, 2007 - 1:34PM The trade deficit blew out in March as resource infrastructure bottlenecks cut the country's export earnings. The balance on goods and services widened to a seasonally adjusted deficit of $1.622 billion in March, from a downwardly revised $728 million in February, figures from the Australian Bureau of Statistics (ABS) showed. Exports dropped four per cent in adjusted terms, while imports rose one per cent. UBS economist George Tharenou said the large fall in exports was the biggest contributor to the trade deficit blow-out. "The data reveals a worse export performance heavily impacted by likely temporary resource infrastructure bottlenecks and delays, after a moderate improvement over the prior two months," he said. "The decrease in exports largely reflected lower metals ores, gold and other mineral fuels, with cereals also down again. "Offsetting these falls to some extent were solid rises in machinery and other manufactures." Mr Tharenou said import growth was slightly softer in the month, but would likely pick up again due to the stronger Australian dollar. ...read more.

Middle

of the aggregate demand curve (graph to left). Therefore, a trade deficit slows down the economy. In Australia, "resource infrastructure bottlenecks cut the country's export earnings". A bottleneck is a point at which an industry or economic system has to slow its growth because one or more of its components cannot keep up with demand. This means that there is not enough excess supply potential in the economy in order to export goods. Production shutdowns and delays are slowing down the exports, and once production is up and running then there should be more exports and a more favourable balance of trade. However, economist Helen Kevans disagrees, saying the firmer Australian dollar was the reason for the reduction in exports. "Exports dropped four percent in adjusted terms while imports rose one percent." The Australian dollar has recently become stronger; perhaps the stronger Australian dollar is encouraging people to import more. In addition, the economist suggests that the strong Australian dollar is undermining the competitiveness of its exports because it is now more difficult for other countries to import Australian goods. ...read more.

Conclusion

The industries that do not manage to export enough goods (metal ores, gold, mineral fuels, and cereals) will have a decrease in production, supply, then finally, employment. Therefore, if this negative balance of trade persists in Australia, then the level of unemployment will increase. However, people believe that sometimes the trade deficits will not affect the country, this is because free markets will correct a country's trade deficit, as floating currency rates rise or fall with time to encourage or discourage imports in favour of the exports, reversing again in favour of imports as the currency gains strength. In addition, a country with a trade deficit signals that its currency is strong and desirable. A trade deficit then simply means that consumers have the opportunity to purchase and enjoy more goods at lower prices. A trade deficit demonstrates that the country is promoting trade, it can consume outside its production possibility frontier, improve its citizens' living standards, and expands the world's production possibility frontier, but is all this worth the risk of a currency crisis? ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Here's what a teacher thought of this essay

3 star(s)

***
The analysis in the second part of this essay is a good attempt but the writer is not in full command of the theory. The question of whether a trade deficit is always a bad thing is very complex and the writer does not attempt to deal with it.

Marked by teacher Dennis Salter 04/10/2013

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. Marked by a teacher

    International Business Strategy - Case Study on Unilever

    4 star(s)

    This fosters the relationship with the government when carrying out its business activities. Economic - All of the above countries have initiated economic reforms, such as privatization of public services, reduction of control on foreign trade and investments, promotion of free trade etc, in order to boost domestic economic performance.

  2. How reliable are National income statistics as a means of comparing living standards between ...

    But exchange rates are largely dependant on the international trading and hence carry little relevance to the domestic currency's purchasing power within the country. Therefore an adjustment is made to the exchange rate in relation to the inflation rates

  1. Why was Britain the First Industrial Nation?

    Miles of track-covered Britain, and even London to Glasgow was linked by the popular transportation. In 1852 the results of the investment in railways was apparent, the railways offered more speed than the canals, this ensured that trade was working at its fastest.

  2. The Impact of Globalisation upon the Japanese Economy

    Finance and Foreign Direct Investment (FDI) has increased as a direct result of globalisation. FDI is the movement of long-term finances, for the purpose of buying companies or firms. Recently, due to the recession Japan has faced, there has been a downturn of the inflow of FDI however in Figure

  1. A study of Patent system in India in the light of Patent Cooperation Treaty.

    a process for creating a product, "provided that they are new, involve an inventive step, and are capable of industrial application." In other words, to be patentable, an invention must be Novel, Useful, and Non-obvious (NUN). A prerequisite to patentability is that the invention must be capable of some practical application or it must be of some purposes.

  2. 'Critically assess the role of the World Trade Organisation (WTO) as a means of ...

    capabilities of attracting domestic as well as foreign direct investment.8 This scheme illustrates the WTO's key role as a promoter of growth and economic development. A valid question is how a country is termed 'developing' or a 'least developed' country.

  1. What were the positive and negative effects of imperialism?

    But these can also benefit the colonized country. Politically, a colonized country can have the influence n government banking systems. For e.g. India's government and banking system's are based upon influence of British rulings. Some sources indicate imperialism benefit through moral motives. According to this perspective, political, cultural, or religious beliefs force states into imperialism as a "missionary activity."

  2. Is globalization a new phenomenon in world politics?

    and standard oil where the dominant MNC's in both their fields of electricity and oil respectively. Both these MNC's were dominant in certain areas of the globe with both being richer and more powerful than a majority of governments throughout the world.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work