The Balance of Trade is the monetary difference between the nation’s exports and imports over a certain period. The balance of trade is positive when exports exceed imports. The balance of trade is negative when imports exceed exports. When labeled Net Exports the difference between exports and imports becomes a component of the national gross domestic product. Therefore, positive readings of the indicators are more desirable — positive balance adds to GDP.
United States Balance of Trade
The United States’ balance of trade remained mostly negative since the beginning of 1976. In April 2017, the deficit of goods and services reached $47.6 billion, which is impressive but still far from the all-time low of -$67 823 million in August 2006. In the period between 1950 and 2017 the average value of the balance of trade was -$13 749.72 million.
The Trade Balance is the balance between exports and imports of total goods and services over a set period of time. The metric is released by the Bureau of Economic Analysis and the U.S. Census Bureau. A positive value shows that more goods have been exported than imported, a negative value shows that more goods have been imported than exported.
Why is it important?
In order to cover the deficit (a portion of goods and services imported into the country and not covered by the exports), the state borrows from other countries. In the short-term the deficit works as a loan, stimulating national economy. In the long-term, however, the effects are not always positive. The country becomes a net consumer of the world’s economic output. Sooner or later creditors will come for their debts. And the borrower will have to sell a portion of its assets to square up.
The situation when the balance of exports exceeds the balance of imports is called a trade surplus. In the short-term the effects for the lender are positive, as he provides growing economies with loans and can expect a payout in the future. In the long run, however, it can be wise to stimulate the development of the domestic market and motivate the consumers to spend less. The abovementioned measures protect national currency from excessive exchange rate fluctuations.
Trade balance and exchange rates
A higher than expected reading should be taken as bullish for the USD, while a lower than expected reading should be taken as bearish for the USD.
