Dealing with trade disputes caused by imbalances – International Institute for Strategic Research and Training (IISRT)

Dealing with trade disputes caused by imbalances

A deficit is a situation where the value of imports is higher than that of exports. At times, when the situation continues and keeps on growing, the deficit may be a cause for dispute.

Imposing tariffs generally does not work and can backfire. If there is an element of unfairness, the case can be taken to WTO for adjudication albeit resolution.

WTO dispute resolution gateway:

Also, the countries concerned coud renegotiate trade agreements which had been entered into. After the bickering between the USand Mexico over NAFTA, representatives from the two countries are working on a renegotiation deal. Canada will be next. A similar effort has been successfully undertaken between the US and EU, following clear misunderstanding.

Often, there is a misunderstanding about the balance of payment, for instance a deficit in goods can be offset by a positive difference in the exchange of services. One has to take into account the three elements of the current account: balance on goods, balance on services and balance on income.

Further, a closer lok has also to be taken at the financial account.

IMF balance of payments manual is helpful:

By the way, the IMF can provide technical assistance needed:


Note: a situation may be more complex than at first sight; looking at the trade imbalance between China and the US, It would appear that some of the exports to the US may be from US companies producing in China and exporting the goods to the US. A deeper analysis may be warranted.

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