Balance of Trade

In economics, the term balance of trade denotes the difference between a country’s imports and exports.

When the value of a country’s imports is greater than that of its exports, the balance of trade is said to be negative because the country is buying more than it is selling. When the balance of trade is negative, the difference between the value of a country’s exports and that the higher value of its imports is referred to as a trade deficit.

The balance of trade is determined by the investment and purchase behavior of the businesses and citizens resident in a country.

A trade deficit can indicate a downturn in a country’s production, and subsequently a decline in economic activity.

However, a moderate trade deficit over a limited period of time can also indicate increased investment in other countries by a country’s population and institutions, which may in turn increase economic activity and returns to that country’s population in the future.