The Trade Balance (also called the Balance Of Trade)
is the biggest component of a country's Current Account Balance. It
is the difference in the monetary value between a country's import
and export in a certain period.
When the difference is positive, Trade Balance is
called trade surplus. A trade surplus means that what is going out
of the country is still lower than what is coming into it. Goods
and services that can lead to a trade surplus include imports,
domestic spending overseas, domestic investments overseas and
Conversely, if the difference in the output of
imports and exports is negative, it's called Trade Deficit. In this
case, the country spends more than what it is gaining. The things
that help contribute to a trade deficit are exports; foreign
investments in the country; and foreign spending in the
Several factors affect Trade Balance and they are as
- Production costs in the exporting economy with regards to the
production costs in the importing economy
- The price and supply of raw materials, intermediate goods and
- Currency rate changes
- Trade restrictions and taxes
- Price of domestic goods and others.
These factors play a huge role in the resulting Trade
Balance of a country. When the reported Trade Balance is positive,
the country is considered to be on good economic footing. But, more
economists agree that consistent trade deficits in a country can
lead to foreign currency debt - which in turn can trigger a crises
in the country's currency, and a debilitation of the country's
overall economic growth.
Trade Balance is a good indicator of economic
stability as it shows the position of the country's economy - in
relation to the bigger international marketplace. Foreign currency
exchange rates may be predicted too, as well as global economic
conditions that could impact the country's economy.