A trade deficit matters because it changes who is doing the spending and investing in an economy, how exposed key sectors are to foreign competition, and how much domestic production and capacity is displaced. Trade deficits redirect income and credit creation away from domestic producers, weakening productive investment domestically and shifting bank lending toward non-productive uses such as asset speculation and inflation. It also impacts how dependent a country becomes on foreign capital over time. Trade deficits show up as a negative balance of trade in the current account and are financed by selling assets or borrowing from abroad, giving up domestic production for foreign ownership and debt.

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