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Are Trade Surpluses Always Beneficial?

Directions: Before you start listen to part of a talk in an economics class.

*Vocabulary is sometimes provided in written form when it may be unfamiliar to the student, but essential for understanding the lecture

Vocabulary
surplus
recession
gross domestic product

TRANSCRIPT

Are Trade Surpluses Always Beneficial?

Perhaps no economy around the world is better known for its trade surpluses than Japan. Since 1990, the size of these surpluses has often been near $100 billion per year. When Japan’s economy was growing vigorously in the 1960s and 1970s, its large trade surpluses were often described, especially by non-economists, as either a cause or a result of its economic health. But from a standpoint of economic growth, Japan’s economy has been in and out of recession since 1990, with real gross domestic product growth averaging only about 1% per year, and an unemployment rate that has been creeping higher. Clearly, a trade surplus is no guarantee of economic good health.

Instead, Japan’s trade surplus reflects that Japan has a very high rate of domestic savings, more than the Japanese economy can invest in domestically, and so the extra funds are invested abroad. In Japan’s slow economy, the growth of consumption is relatively low, which also means that consumption of imports is relatively low. Thus, Japan’s exports continually exceed its imports, leaving the trade surplus continually high.

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