What is characterized by a trade deficit?

A trade deficit occurs when a country imports more goods and services than it exports. This means that the total value of imports surpasses the total value of exports, leading to a negative balance of trade. Such a situation can occur for various reasons, including a higher demand for foreign goods, the preference for certain imported products, or a lack of competitive domestic industries.

When a country experiences a trade deficit, it has to finance that deficit, often by borrowing from other countries or selling domestic assets to foreign investors. This scenario can have several implications, such as impacting the exchange rate, influencing domestic production and employment, and affecting economic growth. Understanding this concept is crucial in analyzing a nation's economic health and its position in global trade.