Trade Deficit

Tax Glossary Definition

Trade Deficit

A trade deficit arises when a country purchases more goods and services from abroad than it sells overseas. In such a situation, the total value of imports exceeds the value of exports, leading to a net outflow of domestic currency to foreign markets. When this imbalance continues for extended periods, it can affect exchange-rate movements, foreign-currency holdings, and broader economic conditions.

Example: Suppose India’s annual imports amount to $600 billion, while its exports total $450 billion. The difference—$150 billion—represents India’s trade deficit for that year.

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