Trade Balance Definition. A Trade Balance, or Balance of Trade, is the difference between the monetary value of exports and imports of a specific country’s economic output over a certain period of time. It is one of many economic fundamentals that affect the relative value of a country’s currency. A positive or favorable balance of trade is known as a trade surplus when exports exceed imports. Conversely, a negative or unfavorable balance is referred to as a trade deficit or trade gap. The balance of trade is also part of a nation’s current account, which includes income from the international investment positions, as well as international aid and other cross-border transactions. Factors that can affect the balance of trade include exchange rate movements, relative production costs between trading partners, the availability of raw materials, various taxes or restrictions on trade, the availability of adequate foreign exchange or reserves to pay for imports, and the domestic prices of goods that are exported. Small trade deficits are not viewed as harmful, but large trade deficits are seen as problematic for a country’s domestic economy.
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