The Balance of Payments (BOP) is important for understanding trade deficits. It has a complicated structure, but let’s break it down:

1. Current Account:

   • This shows how much a country trades, earns, and gives.
   • If a country keeps having a trade deficit, it means they are buying more from other countries than they are selling. This can hurt the economy.

2. Capital Account:

   • This part tracks money flowing in and out of the country.
   • If a country relies too much on money from other countries, it can be risky if something goes wrong.

Challenges:

• Trade deficits can lead to problems like currency dropping in value, rising prices, and job losses.
• They also make it hard for the government to manage the economy effectively.

Potential Solutions:

• Make exported goods more competitive.
• Create trade agreements that lower barriers for trade.