Micro and Macro Aspects of Policies to Reduce a Trade Deficit | Synoptic Paper 3

In this synoptic revision video we examine and evaluate some micro and macro policies that might be used to help reduce the size of the UK's trade deficit.

Video summary

Micro policies focus on individual industries and labour markets, suggesting measures like export subsidies, input subsidies, tax breaks, and investment encouragement to boost exports. Another approach is investing in human capital and entrepreneurship to increase labour productivity and competitiveness.

On the macro level, policies can include engineering a depreciation of the currency to improve price competitiveness and increasing infrastructure spending to reduce costs and improve trade. Evaluating these policies requires considering both cyclical and structural causes of the trade deficit, and micro policies may be more effective in the long run for improving non-price competitiveness. However, there are potential risks and inefficiencies associated with targeted government interventions.