balance of trade

noun phrase
Updated on: 13 Oct 2017

Definition of balance of trade

:the difference in value over a period of time between a country's imports and exports

First Known Use of balance of trade

1668


Financial Definition of BALANCE OF TRADE

balance of trade

What It Is

Balance of trade (BOT), also known as the trade balance, is the calculation of a country's exports minus its imports.

How It Works

When a country imports more than it exports, the resulting negative number is called a trade deficit. When the opposite is true, a country has a trade surplus.

For example, if the United States imported $1 trillion in goods and services last year, but exported only $750 billion in goods and services to other countries, then the United States had a negative $250 billion BOT, or a $250 billion trade deficit.

In the United States, the Bureau of Economic Analysis calculates the BOT. The BOT is a component of a country's current account, which in turn is a component of the Balance of Payments.

Why It Matters

The trade balance is used to help economists and analysts understand the strength of a country's economy in relation to other countries.

A country with a large trade deficit is essentially borrowing money to purchase goods and services, and a country with a large trade surplus is essentially lending money to deficit countries. In some cases, the balance of trade correlates with the country's political stability because it is indicative of the level of foreign investment occurring there.


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