This document discusses the impact of foreign trade on GDP. It notes that while changes in exports and imports may impact aggregate demand in the short run, the major impact is on the supply side in the long run by increasing productivity and total GDP. Foreign trade allows countries to specialize based on comparative advantage. Additionally, trade deficits do not necessarily have a negative impact on the economy as long as foreign investors are willing to hold the currency without depreciating its value. The trade deficit may actually benefit the economy by increasing foreign investment and funding domestic capital spending.

1. Chapter 11 Basic Determinants of Exports and Imports