<p>To complement @1muflon1's answer (+1). Here are some definitions from the <a href="http://www-personal.umich.edu/~alandear/glossary/" rel="nofollow noreferrer">Deardorffs' Glossary of International Economics</a>, a very reliable source of information.</p>

<ul>
<li><strong>Trade deficit</strong> is simply defined as "Imports minus exports of <em>goods and services</em>."</li>
<li>Regarding <strong>current account deficit</strong>. </li>
</ul>

<p>Let's first define the <strong>current account</strong>  which includes trade:</p>

<blockquote>
  <p>A country's international transactions arising from current flows (...). Includes trade in goods and services (including payments of interest and dividends on capital) plus inflows and outflows of transfers.</p>
</blockquote>

<ul>
<li><strong>Current account deficit</strong> is thus credits minus debits on current account (and this balance is negative). </li>
</ul>

<p>In other words the current account balance equals the balance of trade on goods and services, <strong>including</strong> interest and dividend income, <strong>plus</strong> net inflows of transfer payments. </p>

CC BY-SA 4.0
2020-03-30T12:36:09.607Z
2020-03-30T12:36:09.607Z
emeryville
<p>They are very related concepts but they are not completely same.</p>

<p>Current account deficit occurs when country spends more on imports than it receives in imports.</p>

<p>Trade deficit means that more imports are being sold than exports by a country.</p>

<p>A trade deficit is also a part of current account deficit as current account can be decomposed as:</p>

<p><span class="math-container">$$CA=X-M+NI+NT$$</span></p>

<p>Where <span class="math-container">$X-M$</span> is the trade balance and and if <span class="math-container">$X-M&lt;0$</span> we say country has a trade deficit, but as you can see the current account also includes net income which is income of country’s resident minus income paid to foreigners and NT is net transfers which includes things like foreign aid and remittances. A current account deficit occurs when <span class="math-container">$X-M+NI+NT&lt;0$</span>.</p>

<p>So although they are related and trade deficit is usually a big component of current account deficit they are definitely not same. It’s even possible for country to have current account surplus while having trade deficit.</p>

CC BY-SA 4.0
2020-03-30T12:38:21.960Z
Should one ring the alarm if current account is negative? The US has a trade deficit with many countries and there's no catastrophe
Sergey Zolotarev
CC BY-SA 4.0
2020-03-30T12:43:07.770Z
@SergeyZolotarev no if a country has flexible exchange rate neither current account surpluses or deficits are a problem. Under some specific exchange rate restrictions or trade policies either trade surplus or trade deficit becomes a problem but that does not really apply to US which is more or less still free trading country (this mostly creates issues for members of Euro Zone). In the long run what you want is perfect trade balance but floating exchange rate will help to deliver that in long run. If you don’t have it then both CA or trade surpluses and deficits are bad for economy.
1muflon1
CC BY-SA 4.0
2020-03-30T11:38:23.697Z
2020-03-30T11:38:23.697Z
1muflon1
<p>I read <a href="https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp" rel="nofollow noreferrer">this</a> article and still don't understand the difference. "Spends more money on what it imports compared to the money it receives for what it exports" (how it defines current account deficit). "There is more being bought by the country than there is being sold" (how it defines trade deficit). Isn't this the same thing described by different words?</p>

CC BY-SA 4.0
2020-03-31T02:55:04.723Z
Some good answers below, but you could also look at http://gregmankiw.blogspot.com/2006/07/current-acccount-vs-trade-deficit.html for some concrete examples; it would be lame for me to quote that here in its entirety.
fantastic peace and prosperity
<balance-of-trade>
What is the difference between trade deficit and current account deficit?
Sergey Zolotarev
# What is the difference between trade deficit and current account deficit?

(Asked by: username_0 on 2020-03-30)

I read [this](https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp) article and still don't understand the difference. "Spends more money on what it imports compared to the money it receives for what it exports" (how it defines current account deficit). "There is more being bought by the country than there is being sold" (how it defines trade deficit). Isn't this the same thing described by different words?

**Tags:** balance-of-trade

> **Comments:**
> **username_1**: Some good answers below, but you could also look at http://gregmankiw.blogspot.com/2006/07/current-acccount-vs-trade-deficit.html for some concrete examples; it would be lame for me to quote that here in its entirety.  

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## 2 answers

### Answer by username_3 on 2020-03-30. Score: 4 | Accepted answer

They are very related concepts but they are not completely same.

Current account deficit occurs when country spends more on imports than it receives in imports.

Trade deficit means that more imports are being sold than exports by a country.

A trade deficit is also a part of current account deficit as current account can be decomposed as:

$$CA=X-M+NI+NT$$

Where $X-M$ is the trade balance and and if $X-M<0$ we say country has a trade deficit, but as you can see the current account also includes net income which is income of country’s resident minus income paid to foreigners and NT is net transfers which includes things like foreign aid and remittances. A current account deficit occurs when $X-M+NI+NT<0$.

So although they are related and trade deficit is usually a big component of current account deficit they are definitely not same. It’s even possible for country to have current account surplus while having trade deficit.

> **Comments:**
> **username_0**: Should one ring the alarm if current account is negative? The US has a trade deficit with many countries and there's no catastrophe  
> **username_3**: @SergeyZolotarev no if a country has flexible exchange rate neither current account surpluses or deficits are a problem. Under some specific exchange rate restrictions or trade policies either trade surplus or trade deficit becomes a problem but that does not really apply to US which is more or less still free trading country (this mostly creates issues for members of Euro Zone). In the long run what you want is perfect trade balance but floating exchange rate will help to deliver that in long run. If you don’t have it then both CA or trade surpluses and deficits are bad for economy.  

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### Answer by username_2 on 2020-03-30. Score: 2

To complement @username_3's answer (+1). Here are some definitions from the [Deardorffs' Glossary of International Economics](http://www-personal.umich.edu/~alandear/glossary/), a very reliable source of information.

* **Trade deficit** is simply defined as "Imports minus exports of *goods and services*."
* Regarding **current account deficit**.

Let's first define the **current account** which includes trade:

> A country's international transactions arising from current flows (...). Includes trade in goods and services (including payments of interest and dividends on capital) plus inflows and outflows of transfers.

* **Current account deficit** is thus credits minus debits on current account (and this balance is negative).

In other words the current account balance equals the balance of trade on goods and services, **including** interest and dividend income, **plus** net inflows of transfer payments.


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