Financial Definition of 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
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
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.
Learn More about balance of trade
Britannica.com: Encyclopedia article about balance of trade
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