What is Balance of Trade?

What is Balance of Trade?

Definition

The balance of trade is the difference between the value of country’s exports and its imports. If exports exceed imports, the balance of trade is said to be favorable. Conversely, if a nation imports more than it exports, its balance of trade is unfavorable. A favorable balance of trade is also referred to as a trade surplus and an unfavorable one as a trade deficit.

What does balance of trade mean?

A country exports what it is good at producing. For example, the U.S. exports large quantities of food, beverage, and feed. In 2017, the export of these items to other countries totaled $133 billion. Similarly, crude oil, fuel, and other petroleum products worth $109 billion were exported.

But goods are not the only exports from the U.S. The country has large service exports as well. In 2017, travel and transportation exports totalled $236 billion. Finance and insurance, another service export, accounted for $76 billion. Intellectual property exports, which include software and movies, contributed $49 billion.

If you total the country’s goods exports and service exports and reduce its goods and service imports from the figure that you get, you will obtain the balance of trade amount. How does America do if you analyze its balance of trade?

In 2017, the country’s imports were greater than its exports by a massive $566 billion.

Example of balance of trade

The following chart that has been accessed from the United States Census Bureau, provides data pertaining to the country’s top 15 trading partners.

Top Trading Partners of the U.S. in 2018 – Data pertains only to goods. Figures are in billions of dollars Balance of Trade
Source – United States Census Bureau America’s top trading partner is China. In 2017, the total value of goods exported to China was $130.4 billion. But the value of goods imported from that country in the same year was $505.6 billion. This contributed to America’s large negative balance of trade. In fact, total goods imports exceeded total goods exports by $796.1 billion dollars in 2017.

Summary

A country’s balance of trade position is the result of the value of its total exports and imports. If a nation’s imports exceed its exports, its trade balance will be negative.