This is important for two reasons. First, insofar as trade is driving GDP, it will not be negatively impacted by a fiscal adjustment. The demand from outside of the country will not be reduced by a country’s decision to raise taxes or cut spending. The second reason it is important is that the fiscal adjustment can actually boost trade. A lower deficit can lead to a decline in interest rates, which can in turn be expected to lead to a lower value for the country’s currency relative to that of its trading partners. This raises the final important.
