Balance of trade is the difference between the value of exports and imports of goods and/or services of a country in a specific period.
As it measures the difference between exports and imports, it is also referred to as trade balance.
Balance of trade is a significant element of national accounting that identifies exports and imports of goods and services.
It provides a comparison between-
exports – that is, the value of goods and services produced in the country and then sold abroad, and
imports – that is, the value of goods and services produced abroad and purchased by the country.
Balance of trade is, therefore, an economic indicator. Policymakers and economists use it to measure the economic strength of a country.
Trade balance or balance of payment is a major component of the balance of payment.
How to calculate Balance of trade or Trade balance
To calculate the trade balance we need two information-
- the total value of exports of goods and services
- the total value of imports of goods and services
of the country for a fixed period, suppose a year.
Export and import data can be collected from customs values or customs department.
If the total value of exports is greater than the value of imports, then this country has a trade surplus.
On the other hand, if the total value of exports is smaller than the value of imports, then it’s a trade deficit country.
But, mere trade surplus and trade deficit are not enough to conclude about the economic strength of a country. In different stages of economic development, a country’s trade indices behave differently.
Balance of trade USA and China 2019
In this table, we see balance of trade us and balance of trade china information for the year 2019
|Trade Balance by Month
Source: 1. ceicdata.com/en/indicator/china/trade-balance 2. tradingeconomics.com/united-states/balance-of-trade