What is a Trade Surplus?
When the value of a country's exports exceeds the value of its imports, the resulting positive number is called a trade surplus.
Trade Surplus Example
First, let's back up and define another important term.
Balance of trade ( ; also called the " ") is a measure of a country's exports minus its imports. BOT is a component of a country's as is calculated for a particular period (usually a quarter or a year). In the United States, the Bureau of Economic Analysis calculates the BOT.
For example, if the value of exported items to the United States equaled $1 trillion last year, but the value of imported items from the United States equaled $750 billion, then the United States would have a positive $250 billion , or a $250 billion trade surplus.
Why a Trade Surplus is Important
Countries have various methods for calculating economists and analysts understand the strength of a country's economy in relation to other countries. For example, a country with a large trade is essentially borrowing to purchase goods and services, but a country with a large trade surplus is essentially doing the opposite. In some cases, the BOT correlates with the country's political stability because it is indicative of the level of foreign occurring there.
As mentioned, the BOT is part of the , which is composed of three subaccounts in the United States: the current account, the capital account and the financial account, each of which has its own type of inflows and outflows. The BOT is part of the current account, which is composed of merchandise trade, services, income receipts and one-way transfers such as foreign aid.