page_title: Balance of trade
section_title: Explanation
hierarchical_section_title: Balance of trade / Explanation
caption_attribution_description: English: U.S. Trade Balance and Trade Policy (1895–2015)
context_page_description: The balance of trade, commercial balance, or net exports, is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance of trade for goods versus one for services. The balance of trade measures a flow of exports and imports over a given period of time. The notion of the balance of trade does not mean that exports and imports are "in balance" with each other.
  If a country exports a greater value than it imports, it has a trade surplus or positive trade balance, and conversely, if a country imports a greater value than it exports, it has a trade deficit or negative trade balance. As of 2016, about 60 out of 200 countries have a trade surplus. The notion that bilateral trade deficits are bad in and of themselves is overwhelmingly rejected by trade experts and economists.
context_section_description: The balance of trade forms part of the current account, which includes other transactions such as income from the net international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.
  The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market).
  Measuring the balance of trade can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by almost 1%; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. While the accuracy of developing countries statistics would be suspicious, most of the discrepancy actually occurs between developed countries of trusted statistics,
  Factors that can affect the balance of trade include:
  The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy vis-à-vis those in the importing economy;
  The cost and availability of raw materials, intermediate goods and other inputs;
  Currency exchange rate movements;
  Multilateral, bilateral and unilateral taxes or restrictions on trade;
  Non-tariff barriers such as environmental, health or safety standards;
  The availability of adequate foreign exchange with which to pay for imports; and
  Prices of goods manufactured at home (influenced by the responsiveness of supply)
  In addition, the trade balance is likely to differ across the business cycle. In export-led growth (such as oil and early industrial goods), the balance of trade will shift towards exports during an economic expansion. However, with domestic demand-led growth (as in the United States and Australia) the trade balance will shift towards imports at the same stage in the business cycle.
  The monetary balance of trade is different from the physical balance of trade (which is expressed in amount of raw materials, known also as Total Material Consumption). Developed countries usually import a substantial amount of raw materials from developing countries. Typically, these imported materials are transformed into finished products and might be exported after adding value. Financial trade balance statistics conceal material flow. Most developed countries have a large physical trade deficit because they consume more raw materials than they produce. Many civil society organisations claim this imbalance is predatory and campaign for ecological debt repayment.
caption: U.S. trade balance and trade policy (1895–2015)
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