The trade balance is the difference between the value of the goods that a country (or another geographic or economic area such as the European Union (EU) or the euro area) exports and the value of the goods that it imports. Show If exports exceed imports then the country has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country or area has a trade deficit and its trade balance is said to be negative. However, the words ‘positive’ and ‘negative’ have only a numerical meaning and do not necessarily reflect whether the economy of a country or area is performing well or not. A trade deficit may for instance reflect an increase in domestic demand for goods destined for consumption and/or production. The total trade balance, including all goods exported and imported, is one of the major components of the balance of payments. A big surplus or deficit for a single product or product category can show a particular national competitive advantage or disadvantage in the world market for goods.
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Definitions and BasicsBalance of Payments, from the Concise Encyclopedia of Economics
Imports, from AmosWEB’s Economics Gloss*arama.
Exports, from AmosWEB’s Economics Gloss*arama.
Balance of Trade, from AmosWEB’s Economics Gloss*arama.
In the News and ExamplesPopular myth: Aren’t imports bad? Aren’t exports good? Isn’t a trade deficit a bad thing? The very word “deficit” sounds bad! Economic reality: An excess of imports over exports merely sends dollar bills overseas while bringing real goods and services into the country for immediate use. If foreigners want to hold onto those dollars, while we get to put their goods to immediate use benefiting our consumers and creating new investment for our industries, then we get an even better deal! Prohibiting trade severely limits what you can accomplish. Don Boudreaux on the Economics of “Buy Local”. Podcast at EconTalk, April 16, 2007.
The Buy-Locally-Owned Fallacy, by Karen Selick. November 3, 2008.
Photos of the 100-Mile Suit. Buying local example. At Wired, March 31, 2007.
Don Boudreaux on Globalization and Trade Deficits. Podcast at EconTalk, January 21, 2008.
The Balance of Trade, by Frédéric Bastiat. Chapter 6 in Economic Sophisms, first published 1845 in France.
Why not just buy American? Why not just by British? Foreign Trade, or The Wedding Gown, by Jane Haldimand Marcet in John Hopkins’s Notions on Political Economy. 1831.
A Little History: Primary Sources and ReferencesMercantilism, from the Concise Encyclopedia of Economics
Exports and Imports, from Lalor’s Cyclopedia of Political Science
Balance of Trade, from Lalor’s Cyclopedia of Political Science
Mercantile System, from Lalor’s Cyclopedia of Political Science
Advanced ResourcesRelated TopicsBarriers to Trade What is the difference between imports and exports called?The difference between exports and imports. A positive balance is called a surplus. A negative balance is called a deficit.
What is meant by balance of trade?balance of trade, the difference in value over a period of time between a country's imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union (e.g., dollars for the United States, pounds sterling for the United Kingdom, or euros for the European Union ...
What is the difference between trade balance and balance of trade?Balance of trade or BoT is a financial statement that captures the nation's import and export of commodities with the rest of the world. Balance of payment or BoP is a financial statement that keeps track of all the economic transactions by the nation with the rest of the world.
What is an example of balance of trade?Balance of Trade formula = Country's Exports – Country's Imports. For example, suppose the USA imported $1.8 trillion in 2016 but exported $1.2 trillion to other countries, then the USA had a trade balance of -$600 billion, or a $600 billion trade deficit.
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