it occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets. A deficit is the opposite of a surplus.BREAKING DOWN DeficitA trade deficit exists when a nation’s imports exceed its exports. For example, if a nation imports $3 billion in goods but only exports $2 billion, the nation has a trade deficit of $1 billion for that year. The implication is that there is more in terms of value entering the country (being bought) than there is leaving the country (being sold). As a RESULT, the country owes more to other countries than it is owed by other countries.A trade deficit can cause a drop in a domestic currency’s value and a reduction in domestic jobs. Some people believe that trade deficits are a result of global competition, which provides consumers with greater choice in products.Assume the small island of Yota has abundant resources. It uses them to meet almost all of its citizens' needs. It also uses its resources to BUILD a factory to make surfboards. This is the only item that Yota exports. The one resource Yota does not have is oil, and it needs oil to generate electricity for its citizens and the surfboard factory.  If Yota imports $1 million of oil in a year, but only exports $600,000 worth of surfboards, Yota will have a trade deficit of $400,000. Note that the only WAY for Yota to have this trade deficit is if other countries are willing to allow the island to borrow funds to FINANCE the $400,000 debt.