Trade imbalance is a common term that appears in economics. The correct definition of trade imbalance or balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. In other words, it is the relationship between any nation’s imported products and exported products.
A positive balance is when the amount of exports is greater than the amount of imports, and this is known as a trade surplus. Whereas the opposite (a negative balance), where there are greater imports than exports, is known as a trade deficit or trade gap.
Like most things in economics, a balance of trade is not really something that can be predicted as it is forever changing every single day. In export-led growths such as oil and other industrial goods, the balance of trade has been found to greatly improve when an economic expansion is occurring. However, in the case of domestic demand led growth, for example in the United States and Australia, the trade balance will always worsen at the same stage in the business cycle. Overall though, the balance of trade is likely to vary at different stages of the business cycle.
There are a number of factors that can affect the overall balance of trade. Some of these include: The cost of production in the exporting company, the availability and cost of raw materials that are used to create these products, the current exchange rates, any unilateral, bilateral or multilateral taxes or restrictions that impede the movement of certain products and the current prices of goods that are manufactured at home.
Small trade deficits, a negative balance, are generally not viewed as being a great threat to both the importing and exporting companies. However, if these small deficits continue to grow and expand then problems could be encountered.
A positive balance is when the amount of exports is greater than the amount of imports, and this is known as a trade surplus. Whereas the opposite (a negative balance), where there are greater imports than exports, is known as a trade deficit or trade gap.
Like most things in economics, a balance of trade is not really something that can be predicted as it is forever changing every single day. In export-led growths such as oil and other industrial goods, the balance of trade has been found to greatly improve when an economic expansion is occurring. However, in the case of domestic demand led growth, for example in the United States and Australia, the trade balance will always worsen at the same stage in the business cycle. Overall though, the balance of trade is likely to vary at different stages of the business cycle.
There are a number of factors that can affect the overall balance of trade. Some of these include: The cost of production in the exporting company, the availability and cost of raw materials that are used to create these products, the current exchange rates, any unilateral, bilateral or multilateral taxes or restrictions that impede the movement of certain products and the current prices of goods that are manufactured at home.
Small trade deficits, a negative balance, are generally not viewed as being a great threat to both the importing and exporting companies. However, if these small deficits continue to grow and expand then problems could be encountered.
