Why is trade deficit a good thing?

Question

In general most economist agree that deficit is not a negative thing, but I have trouble understanding why

For example if country A has 10\$ and country A runs trade deficit to B of 2\$ per year, doesn't this necessary mean that in 5 year country A can no long buy product from other country?

I think I am missing something important here. How can a country run trade deficit multiple years without eventually going bankrupt?

One reason that I have been given is that since country A buys country B's product in country A's currency, country B must use that currency in country A, thus the trade is balance in the long run, is that true?

Answer 1

First off, just because economists say that the trade deficit is not a negative thing, does not mean it is positive.

Yes, trade is balanced in the long run. In and of itself, a trade deficit is therefore not necessarily an issue.

When a country runs a trade deficit that means that it is consuming more than it produces. The country consumes at least as much as it produced and then a bit from what other countries produced too. That in itself is not a bad thing. In fact, consuming more than you produce seems rather nice.

However, a trade deficit may also be a symptom of other economic weaknesses. A perpetual deficit may also be the precursor to a crisis. So whether a deficit in a certain case is bad or good depends on the circumstances. A good source is this IMF report.

That being said, it is incorrect and a bit naive to simply see every trade deficit as a problem.