What is trade balance?
Trade balance is an indicator that measures the ratio between a country's exports and imports during a certain period. Trade balance does not include the services rendered to or from other countries or capital transactions.
Exports are the goods produced in a country that are sold to clients in other countries. Imports, on the other hand, are the purchases of goods made abroad to be consumed in the country.
Balance of the commercial balance
The difference between exports and imports is the balance of the trade balance of a country, which can be:
- Trade surplus if the difference is positive: When there are more exports than imports. This is understood to be the best result for a country because resources enter from abroad.
- Trade deficit if the difference is negative: when foreign purchases exceed foreign sales. If this is an ongoing situation, the country will have to offset this deficit by issuing public or private debt to be able to continue buying goods abroad. This will affect exchange rates: it will increase the value of foreign currencies and weaken own currency, and as a result, the level of debt will increase and the country will lose buying power.
- Balance: when the result is zero, i.e. exports and imports are balanced.
The trade balance forms part of the payment balance, which records all the economic transactions that have taken place between a country and the other countries with which trade relations are held. It includes the exports and imports of goods, services, capital and financial transfers.