I'm usually skeptical of obsessions about trade deficits, which is (to be a bit simplistic) the difference between exports and imports. I think most such worries about the trade deficit comes from the old mercantalist notion which holds that "exports are good" and "imports are bad", which economists as far back as Adam Smith tried to explain, is nonsense. The only reason we export is to get imports, if everything came in for free, why on earth should we produce anything?
Given this, I was a bit surprised to read the the Sunday Times economics column titled "An alarming growth in the trade deficit". The columnist goes into detail on what type of goods lead to this deficit. Now, trade deficits are in it self not really a problem, but it could be (but not necessarily is) a symptom of a problem, depending on how the deficit is created. The U.S. (among other developed countries like Australia) has run a huge trade deficit for a very long time, doesn't seem to have affected them too much.
Now, I'm not saying SL trade deficit is not a problem, but the ST economist doesn't really make the case as to why it is and worse, why this is an 'alarming' situation. His only claim is that 'spending' on imports has increased largely due to high oil prices and the growth of industrial exports is "quite inadequate to finance the increased expenditure on imports".
I'm at odds with this argument. I don't know about you, but the likes of MAS and Brandix, doesn't exactly pay my fuel bill. In reality, countries don't really trade, people do. To pay for the increased Oil prices, I don't necessarily need to export stuff overseas, I can "export" my products/services/labor to my neighbor which doesn't really have an effect on the trade deficit. We don't fret over the trade deficit of Colombo or Kandy, why should we fret over the trade deficit of Sri Lanka unless someone there is evidence to that effect. But then again, he's the economist and I'm the student. So please, anyone, enlighten me, what exactly is so alarming about the Sri Lankan trade deficit?
Related links : Adam Smith on balance of payments, John Stossel on trade deficits, Russ Roberts on Why we Trade.