Balance of trade

Balance of trade figures, also called net exports (NX), are the sum of the money gained by a given economy by selling exports, minus the cost of buying imports. They form part of the balance of payments, which also includes other transactions such as the international investment position.

Related Topics:
Money - Economy - Export - Import - Balance of payments - International investment position

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

The figures are usually split into visible and invisible balance figures. The visible balance represents the physical goods, and invisible represents other forms of trade, e.g. the service economy.

Related Topics:
Visible - Invisible - Service economy

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

A positive balance of trade is known as a trade surplus and consists of exporting more (in financial capital terms) than one imports. A negative balance of trade is known as a trade deficit or, informally, as a trade gap, and consists of importing more than one exports. Neither is necessarily dangerous in modern economies, although large trade surpluses or trade deficits may sometimes be a sign of other economic problems.

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Factors that can affect the balance of trade figures include:

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

• Prices of goods manufactured at home (influenced by the responsiveness of supply),
• Exchange rates, and
• Trade agreements or barriers
• other tax, tariff and trade measures

Measuring the balance of payments can be problematic, due to problems with recording and collecting data. As an illustration of this problem, when official data for all countries in the world is added up it appears that the world is running a positive balance of payments with itself. The total reported amount of exports in the world is greater by a few percent than the total reported amount of imports. 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, and other visibility problems.

Related Topics:
Credit - Debit

~ ~ ~ ~ ~ ~ ~ ~ ~ ~

 
Balance of trade: Economic Impact of Balance of Trade ►