Countries are constantly importing and exporting goods. But when more is imported than exported, a trade deficit occurs. Trade deficits aren’t bad and can occur for a number of reasons. Countries may import more than they export because the economy is growing so quickly. Also, wealthy individuals in the country may be buying luxury items from other nations.
When a country can’t produce enough for its residents, either because of its fast growth or lack of resources, it imports what’s needed from other nations. This kind of import/export imbalance leads to a trade deficit. After a while, imports and exports come back into alignment. A result of trade deficits is an outflow of domestic currency.
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