The balance of payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. investment. The payments of Americans to Japan for automobiles are balanced by the payments of Japanese to U.S. individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New York office buildings…. Show Although the totals of payments and receipts are necessarily equal, there will be inequalities—excesses of payments or receipts, called deficits or surpluses—in particular kinds of transactions. Thus, there can be a deficit or surplus in any of the following: merchandise trade (goods), services trade, foreign investment income, unilateral transfers (foreign aid), private investment, the flow of gold and money between central banks and treasuries, or any combination of these or other international transactions. Balance of Payments at Marginal Revolution University. Balance of Trade, from Britannica.com.
In the News and ExamplesPopular myth: Aren’t imports bad? Aren’t exports good? Isn’t a trade deficit a bad thing? The very word “deficit” sounds bad! Economic reality: An excess of imports over exports merely sends dollar bills overseas while bringing real goods and services into the country for immediate use. If foreigners want to hold onto those dollars, while we get to put their goods to immediate use benefiting our consumers and creating new investment for our industries, then we get an even better deal! Prohibiting trade severely limits what you can accomplish. Daniel B. Klein and Donald J. Boudreaux, The Trade Deficit: Defective Language, Deficient Thinking. Econlib, June 5, 2017. Notice that if imports exceed exports, as they have done for decades in the United States, then, on net, more dollars leave the United States by Americans’ purchases of imports than come in by Americans’ sales of exports. Such a situation is termed a current-account deficit, or “trade deficit.” But the terminology could just as well be formulated the other way around, in a framework of husbanding stuff. Then, under the same condition of imports exceeding exports, the focus is on the stuff that, on net, is flowing into the United States. Now we view the exact same world but see a surplus. Don Boudreaux on the Economics of “Buy Local”. EconTalk podcast episode, April 16, 2007.
Trade Imbalances, at Marginal Revolution University Why not just buy American? Foreign Trade, or The Wedding Gown, by Jane Haldimand Marcet in John Hopkins’s Notions on Political Economy. 1831.
A Little History: Primary Sources and ReferencesDavid Hume on the Balance of Trade, at Marginal Revolution University Douglas A. Irwin, A Brief History of International Trade Policy, Econlib, November 2001.
The Balance of Trade, by Frédéric Bastiat. Chapter 6 in Economic Sophisms, first published 1845 in France.
Mercantilism, from the Concise Encyclopedia of Economics
Advanced ResourcesNations Gain When They Trade, But What About Me? EconTalk podcast Extra. March 15, 2016. By the end of the conversation, Roberts still doesn’t seem convinced that China is behind the long-term impact on communities and employment. He says that instead the challenge may be that “we’re [the US labor force] not so good at adapting, perhaps, as we once were, for all kinds of reasons.” What are some of those reasons? Is Roberts’s argument plausible? Studies in the Theory of International Trade, by Jacob Viner. The most pervasive feature of the English mercantilist literature was the doctrine that it was vitally important for England that it should have an excess of exports over imports, usually because that was for a country with no gold or silver mines the only way to increase its stock of the precious metals. The doctrine is of early origin, and some of the mercantilists, in the earlier period when it was still customary to scatter miscellaneous tags of classical wisdom through one’s discourse, succeeded in finding Latin quotations which seemed to expound it. Charles L. Hooper, Mercantilism Lives, at Econlib. April 4, 2011. Whether they realize it or not, many modern politicians of various stripes are mercantilists. Just watch the news and you’ll see those in our government and in the media expressing predominantly mercantilist views: Our trading partners’ currencies are too cheap and the trade deficit is too high—together, these two factors reduce domestic employment. What is it called when exports is less than imports?A country that imports more goods and services than it exports in terms of value has a trade deficit while a country that exports more goods and services than it imports has a trade surplus.
What is it called when the value of a country's exports are less than the value of their imports?A trade deficit occurs when a country imports more than it exports. A trade deficit typically also has the opposite effect on currency exchange rates. When imports exceed exports, a country's currency demand in terms of international trade is lower.
What is it called when exports exceed imports?If exports exceed imports then the country has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country or area has a trade deficit and its trade balance is said to be negative.
What is it called when imports and exports are equal?A balanced trade model is one in which imports of a country are equal to its exports. Implementation of balanced trade can be achieved through inflation control and by imposing tariffs or other barriers, such as import certificates, on a country-by-country basis.
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