Trade Balance

(noun)

The difference between the monetary value of exports and imports in an economy over a certain period of time.

Related Terms

Examples of Trade Balance in the following topics:

  • The Balance of Trade

    • The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period.
    • A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap.
    • In addition, the trade balance is likely to differ across the business cycle.
    • In export-led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion.
    • Explain the relationship between the trade balance of a nation and its economic well-being

  • Jobs Argument

    • Many policy makers who are proponents of trade protectionism argue that limiting imports will create or save more jobs at home.
    • Many policy makers who are proponents of trade protectionism make the argument that limiting imports will create more jobs at home.
    • It is useful to consider the concept of a trade balance, or net exports, in the context of the jobs argument.
    • The U.S. and China are a great example of opposite sides of the spectrum, where the trade balance is heavy on one side of the spectrum.
    • It is interesting to look at this graph and assess the extremity to which some nations are 'consumer nations' and others are 'producer nations. ' The U.S. and China are a great example of opposite sides of the spectrum, where the trade balance is heavily on one side of the spectrum.

  • Exchange Rate Policy Choices

    • A government should consider its economic standing, trade balance, and how it wants to use its policy tools when choosing an exchange rate regime.
    • Unfortunately, there is no system that can achieve every possible beneficial outcome; there is a trade-off no matter what regime a nation picks.
    • Flexible exchange rates serve to adjust the balance of trade.
    • That in turn makes the price of foreign goods less attractive to the domestic market and decreases the trade deficit.
    • Under fixed exchange rates, this automatic re-balancing does not occur.

  • The Balance of Payments

    • The balance of payments (BOP) is a record of all monetary transactions between a country and the rest of the world.
    • Whenever a country receives funds from a foreign source, a credit is recorded on the balance of payments.
    • For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves, or by receiving loans from other countries .
    • It includes the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors), and cash transfers.
    • The balancing item is simply an amount that accounts for any statistical errors and ensures that the total balance of payments is zero.

  • Finding an Equilibrium Exchange Rate

    • Countries have a vested interest in the exchange rate of their currency to their trading partner's currency because it affects trade flows.
    • This leads to a trade deficit, decreased production, and unemployment.
    • The balance of payments model holds that foreign exchange rates are at an equilibrium level if they produce a stable current account balance.
    • After an intermediate period, imports will be forced down and exports will rise, thus stabilizing the trade balance and bringing the currency towards equilibrium.
    • The flows from transactions involving financial assets go into the capital account item of the balance of payments, thus balancing the deficit in the current account.

  • Introduction to Foreign Trade and Global Economic Policies

    • What's more, oil price shocks, worldwide recession, and increases in the foreign exchange value of the dollar all combined during the 1970s to hurt the U.S. trade balance.
    • Mounting trade deficits reduced political support in the U.S.
    • Congress for trade liberalization in the 1980s and 1990s.
    • Despite these setbacks to free trade, the United States continued to advance trade liberalization in international negotiations in the 1990s, ratifying a North American Free Trade Agreement (NAFTA), completing the so-called Uruguay Round of multilateral trade negotiations, and joining in multilateral agreements that established international rules for protecting intellectual property and for trade in financial and basic telecommunications services.
    • Officially, the nation remained committed to free trade as it pursued a new round of multilateral trade negotiations; worked to develop regional trade liberalization agreements involving Europe, Latin America, and Asia; and sought to resolve bilateral trade disputes with various other nations.

  • The U.S. Trade Deficit

    • At the end of the 20th century, a growing trade deficit contributed to American ambivalence about trade liberalization.
    • By 1987, the American trade deficit had swelled to $153,300 million.
    • But the American trade deficit swelled again in the late 1990s.
    • By 1997, the American trade deficit $110,000 million, and it was heading higher.
    • American officials viewed the trade balance with mixed feelings.

  • The Importance of Trade

    • International trade is an integral part of the modern world economy.
    • Gains from trade are commonly described as resulting from:
    • International trade is important, and, over time, has become more important.
    • Established in 1946 to rebuild the international economic system after World War II, the Bretton Woods Conference set up regulations for production of their individual currencies to maintain fixed exchange rates between countries with the aim of more easily facilitating international trade.This was the foundation of the U.S. vision of postwar world free trade, which also involved lowering tariffs and, among other things, maintaining a balance of trade via fixed exchange rates that would be favorable to the capitalist system.
    • Even in ancient times, people benefited from widespread international trade.

  • Arguments for and Against Balancing the Budget

    • A balanced budget, particularly a government budget, is a budget with revenues equal to expenditures.
    • A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time .
    • The mainstream economic view is that having a balanced budget in every year is not desirable.
    • John Maynard Keynes founded the Keynesian school, which promotes balanced governmental budgets over the course of the business cycle as opposed to annual balanced budgets.
    • Describe arguments against maintaining a balanced budget in the United States

  • Reason for a Zero Balance

    • Equilibrium in the market for a country's currency implies that the balance of payments is equal to zero.
    • Trade within a country differs in one important way from trade between countries: unless the two nations share a common currency, any trade requires that countries go through the foreign exchange market to trade currency, in addition to trading goods and services.
    • When a country's balance of payments is equal to zero, there is equilibrium in the market for that country's currency.
    • Because of this, the inflows and outflows of money are equal, creating a balance of payments equal to zero.
    • Discuss the long term equilibrium of a country's balance of payments