balance of trade


balance of trade
the difference between the values of exports and imports of a country, said to be favorable or unfavorable as exports are greater or less than imports.
[1660-70]

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Difference in value over a period of time between a nation's imports and exports of goods and services.

The balance of trade is part of a larger economic unit, the balance of payments, which includes all economic transactions between residents of one country and those of other countries. If a nation's exports exceed its imports, the nation has a favourable balance of trade, or a trade surplus. If imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. Under mercantilism a favourable balance of trade was an absolute necessity, but in classical economics it was more important for a nation to utilize its economic resources fully than to build a trade surplus. The idea of the undesirability of trade deficits persisted, however, and arguments against deficits are often advanced by advocates of protectionism.

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      the difference in value over a period of time between a country's imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union (e.g., dollars (dollar) for the United States, pounds sterling (pound sterling) for the United Kingdom, or euros (euro) for the European Union). The balance of trade is part of a larger economic unit, the balance of payments (the sum total of all economic transactions between one country and its trading partners around the world), which includes capital movements (money flowing to a country paying high interest rates of return), loan repayment, expenditures by tourists, freight and insurance charges, and other payments.

      If the exports of a country exceed its imports, the country is said to have a favourable balance of trade, or a trade surplus. Conversely, if the imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. According to the economic theory of mercantilism, which prevailed in Europe from the 16th to the 18th century, a favourable balance of trade was a necessary means of financing a country's purchase of foreign goods and maintaining its export trade. This was to be achieved by establishing colonies that would buy the products of the mother country and would export raw materials (particularly precious metals), which were considered an indispensable source of a country's wealth and power.

      The assumptions of mercantilism were challenged by the classical economic (classical economics) theory of the late 18th century, when philosophers and economists such as Adam Smith (Smith, Adam) argued that free trade is more beneficial than the protectionist tendencies of mercantilism and that a country need not maintain an even exchange or, for that matter, build a surplus in its balance of trade (or in its balance of payments).

      A continuing surplus may, in fact, represent underutilized resources that could otherwise be contributing toward a country's wealth, were they to be directed toward the purchase or production of goods or services. Furthermore, a surplus accumulated by a country (or group of countries) may have the potential of producing sudden and uneven changes in the economies of those countries in which the surplus is eventually spent.

      Generally, the developing countries (unless they have a monopoly (monopoly and competition) on a vital commodity) have particular difficulty maintaining surpluses since the terms of trade during periods of recession work against them; that is, they have to pay relatively higher prices for the finished goods they import but receive relatively lower prices for their exports of raw materials or unfinished goods.

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Universalium. 2010.

Look at other dictionaries:

  • Balance of trade — Balance Bal ance (b[a^]l ans), n. [OE. balaunce, F. balance, fr. L. bilanx, bilancis, having two scales; bis twice (akin to E. two) + lanx plate, scale.] 1. An apparatus for weighing. [1913 Webster] Note: In its simplest form, a balance consists… …   The Collaborative International Dictionary of English

  • balance of trade — ► balance of trade the difference in value between a country s imports and exports. Main Entry: ↑balance …   English terms dictionary

  • balance of trade — n [singular] the difference in value between the goods a country buys from abroad and the goods it sells abroad …   Dictionary of contemporary English

  • balance of trade — noun singular the difference between the value of all the goods a country sells to foreign countries and all the goods it buys from them …   Usage of the words and phrases in modern English

  • balance of trade — n. the difference in value between all the merchandise imports and exports of a country …   English World dictionary

  • Balance of trade — Cumulative Current Account Balance 1980–2008 based on the International Monetary Fund data …   Wikipedia

  • Balance of trade — Net flow of goods (exports minus imports) between countries. The New York Times Financial Glossary * * * balance of trade ˌbalance of ˈtrade noun [singular] ECONOMICS 1. the part of a country s balance of payments that relates to the value of… …   Financial and business terms

  • balance of trade — net flow of goods (exports minus imports) between two countries. Bloomberg Financial Dictionary The difference between a country s imports and exports. Chicago Mercantile Exchange Glossary * * * balance of trade ˌbalance of ˈtrade noun [singular] …   Financial and business terms

  • balance of trade — noun the difference in value over a period of time of a country s imports and exports of merchandise a nation s balance of trade is favorable when its exports exceed its imports • Syn: ↑trade balance, ↑visible balance, ↑trade gap • Hypernyms:… …   Useful english dictionary

  • balance of trade — balances of trade N COUNT: usu sing A country s balance of trade is the difference in value, over a period of time, between the goods it imports and the goods it exports. The deficit in Britain s balance of trade in March rose to more than 532100 …   English dictionary


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