Trade Balance
What is a Trade Balance?
The trade balance, also known as the "balance of trade (BOT)", is the calculation of a country's exports minus its imports.
How Does a Trade Balance Work?
When a country imports more than it exports, the resulting negative number is called a trade deficit. When the opposite is true, a country has a trade surplus.
For example, if the United States imported $1 trillion in goods and services last year, but exported only $750 billion in goods and services to other countries, then the United States had a trade balance of negative $250 billion , or a $250 billion trade deficit.
In the United States, the Bureau of Economic Analysis calculates the trade balance. The trade balance is a component of a country's current account, which in turn is a component of the balance of payments (BOP)
Why Does a Trade Balance Matter?
The trade balance is used to help economists and analysts understand the strength of a country's economy in relation to other countries.
A country with a large trade deficit is essentially borrowing money to purchase goods and services, and a country with a large trade surplus is essentially lending money to deficit countries. In some cases, the trade balance correlates with the country's political stability because it is indicative of the level of foreign investment occurring there.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
