Last Updated 30 Mar 2021

Importance of Balance of Trade

Words 1506 (6 pages)
Views 502

Balance of trade data is a very important piece of understanding the global puzzle of international trade, and thus, forex. Much like an income statement, balance of trade data clearly defines whether a trade deficit or trade surplus is in play. Why Balance of Trade Matters Balance of trade data shows the imports and exports of goods and how a country competes in a global marketplace. Balance of trade numbers can run a trade deficit, showing that a country imported more than it exported, or they can reflect a trade surplus, exporting more than was imported in a specific time period.

Imports and exports can include physical goods and intangible services. Luxembourg, which is a popular banking destination, has one of the highest per capita service exports because its banking system is used internationally. Likewise, Middle Eastern nations have stronger physical exports due to the international oil trade. Just as a negative balance of trade is a bad sign for a country's long run economic health, high export figures can be equally poor for domestic trade. China, which has for a long time been a net exporter, has fought several bouts of domestic inflation as money flows into the country from all over the world.

When the supply of money rises internally at pace faster than the relative increase in wages, internal consumption and demand can be temporarily stymied, causing recessions. However, all things considered, a country would much prefer to attract too much foreign export purchases than too few, as a negative balance of trade cannot be sustained forever. In addition, negative trade increases the possibility of high national debts or inflation from the central bank to maintain domestic currency levels. Making Use of the Data

Order custom essay Importance of Balance of Trade with free plagiarism report

GET ORIGINAL PAPER

Balance of trade data is released once per month and may be revised as time passes and the numbers become clearer. Since tallying all the exports flowing out of a country and all the imports flowing in requires a substantial amount of record keeping and manpower, these reports on trade surplus or trade deficit may be revised for years following their first release. From a forex trading point of view, balance of trade statistics are best used in conjunction with balance of payments. While a net importer cannot show a positive balance of trade, it can, and in many times does, show a positive balance of payments.

This is because net importers have to borrow from other countries to sustain their current consumption, and they routinely borrow more funds than are needed in a single time period or calendar year Factors that can affect the balance of trade include: Measuring the balance of trade can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by almost 1%; it appears the world is running a positive balance of trade with itself.

This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely.

  • The cost of production (land, labor, capital, taxes, incentives, etc. ) in the exporting economy vis-a-vis those in the importing economy;
  • The cost and availability of raw materials, intermediate goods and other inputs;
  • Exchange rate movements; Multilateral, bilateral and unilateral taxes or restrictions on trade;
  • Non-tariff barriers such as environmental, health or safety standards;
  • The availability of adequate foreign exchange with which to pay for imports; and
  • Prices of goods manufactured at home (influenced by the responsiveness of supply How to calculate BOT Trade balance shows how countries interact with each other in the international market place.

Trade balance is also known as net exports. The trade balance shows if a country exports more than it imports. A positive trade balance means the country exports more than it imports. A negative trade balance shows a country imports more than it exports. Having a positive or negative trade balance is neither good nor bad. Trade balance is also part of the calculation for gross domestic product.

  • Use the U. S. Census Bureau to find net imports for the period for which you seek the U. S. trade balance. The Census Bureau releases these statistics periodically on its website. On the Census Bureau website, click "Balance by Partner Country" on the left-side of the screen. Then select a country.For example, select Ivory Coast. Then select the year to analyze. In the example, select 2010. In the example, for January 2010, the United States had net imports of $221. 9 million from the Ivory Coast.
  • Use the U. S. Census Bureau to find net exports for the period. In our example, U. S. net exports to the Ivory Coast were $24. 3 million.
  • Subtract net imports from net exports to determine the trade balance. In our example, $24. 3 million minus $221. 9 million yields a trade balance of negative $197. 6 million, which the Census Bureau rounds to $197. 5 million.

The balance is negative because net imports is greater than net exports. Goods and Services Deficit Decreases in February 2013 The Nation’s international trade deficit in goods and services decreased to $43. 0 billion in February from $44. 5 billion (revised) in January, as exports increased more than imports. | Goods and Services

Exports increased to $186. 0 billion in February from $184. 4 billion in January (revised). Goods were $132. 2 billion in February, up from $130.

8 billion in January. Services were $53. 8 billion in February, up from $53. 6 billion in January. February imports were $0. 1 billion more than January imports of $228. 9 billion (revised). Goods were $192. 4 billion in February, down from $192. 5 billion in January. Services were $36. 5 billion in February, up from $36. 3 billion in January.

For goods, the deficit was $60. 2 billion in February, down from $61. 7 billion in January (revised). For services, the surplus was $17. 3 billion in February, up from $17. 2 billion in January. Goods by Category (Census basis) * The January to February increase in exports of goods reflected increases in industrial supplies and materials ($1. billion); other goods ($0. 5 billion); and automotive vehicles, parts, and engines ($0. 2 billion). Decreases occurred in capital goods ($0. 8 billion); consumer goods ($0. 3 billion); and foods, feeds, and beverages ($0. 1 billion).

The January to February decrease in imports of goods reflected decreases in industrial supplies and materials ($2. 6 billion) and other goods ($0. 3 billion). Increases occurred in automotive vehicles, parts, and engines ($1. 1 billion); consumer goods ($0. 7 billion); capital goods ($0. 3 billion); and foods, feeds, and beverages ($0. billion).

Services by Category

Exports of services increased $0. 2 billion from January to February. The increase was mostly accounted for by increases in other transportation ($0. 1 billion), which includes freight and port services, and travel ($0. 1 billion). Changes in the other categories of services exports were relatively small. * Imports of services increased $0. 2 billion from January to February. The increase was more than accounted for by increases in other transportation ($0. 1 billion), travel ($0. 1 billion), and passenger fares ($0. 1 billion).

Changes in the other categories of services imports were relatively small. Goods by Geographic Area (Not Seasonally Adjusted) * The goods deficit with Canada decreased from $4. 8 billion in January to $2. 6 billion in February. Exports were virtually unchanged at $23. 1 billion, while imports decreased $2. 2 billion (primarily crude oil) to $25. 7 billion. * The goods deficit with China decreased from $27. 8 billion in January to $23. 4 billion in February. Exports decreased $0. 1 billion (primarily soybeans and nonmonetary gold) to $9. 3 billion, while imports decreased $4. billion (primarily cell phones and other household goods) to $32. 7 billion.

The goods deficit with Mexico increased from $3. 6 billion in January to $4. 3 billion in February. Exports decreased $0. 3 billion (primarily computer accessories, electric components, and semiconductors) to $17. 7 billion, while imports increased $0. 4 billion (primarily automobiles, automotive parts, and accessories) to $21. 9 billion India Balance of Trade India recorded a trade deficit of 561. 19 INR Billion in March of 2013. Balance of Trade in India is reported by the Ministry of Commerce and Industry.

Historically, from 1978 until 2013, India Balance of Trade averaged -113. 01 INR Billion reaching an all time high of 13. 91 INR Billion in April of 1991 and a record low of -1111. 46 INR Billion in October of 2012. India had been recording sustained trade deficits due to low exports base and high imports of coal and oil for its energy needs. India is leading exporter of petroleum products, gems and jewelry, textiles, engineering goods, chemicals and services. Main trading partners are European Union countries, United States, China and UAE. This page includes a chart with historical data for India Balance of Trade

Importance of Balance of Trade essay

Related Questions

on Importance of Balance of Trade

Why is balance of trade important?

The Threat When Imports Surpass Imports The equalization of exchange is the estimation of a nation's fares less its imports. It's the most critical segment of the present record. That additionally makes it the greatest segment of the parity of installments that gauges every single worldwide exchange.

Is balance a trade?

The parity of exchange is the distinction between the estimation of a nation's imports and fares for a given period. The parity of exchange is the biggest part of a nation's parity of installments. ... The equalization of exchange is additionally alluded to as the exchange balance or the universal exchange balance.

What affects trade balance?

A nation's equalization of exchange is characterized by its net fares (sends out less imports) and is along these lines impacted by all the components that influence universal exchange. These incorporate factor gifts and profitability, exchange approach, trade rates, remote money stores, expansion, and demand.

Why is the balance of trade so out of balance for the US?

The crucial reason for an exchange shortfall is an irregularity between a nation's reserve funds and venture rates. As Harvard's Martin Feldstein clarifies, the purpose behind the shortfall can be come down to the US overall going through more cash than it makes, which brings about a present record deficit.

This essay was written by a fellow student. You can use it as an example when writing your own essay or use it as a source, but you need cite it.

Get professional help and free up your time for more important courses

Starting from 3 hours delivery 450+ experts on 30 subjects
get essay help 124  experts online

Did you know that we have over 70,000 essays on 3,000 topics in our database?

Cite this page

Explore how the human body functions as one unit in harmony in order to life

Importance of Balance of Trade. (2017, Mar 20). Retrieved from https://phdessay.com/importance-of-balance-of-trade/

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer