The balance of trade is an important term of macroeconomics. Balance of trade is defined by the difference between the total value of export and import of an economy over a period of time. If export is more than import, then the difference between export and import is called as “Trade Surplus”. On the contrary, if import is more than export, then the difference between import and export is called as “Trade Deficit”.
Balance of trade is a part of Current Account, which itself is an important part of Balance of Payment.
The trade balance depends on the following factors:
All the main export oriented economies like China, Japan, and Germany etc. are marinating huge trade surplus every quarter, while all the main importing countries like US and India etc. are facing huge trade deficit every quarter. Small trade deficit is not having any adverse effect to the economy if the GDP is growing the trade deficit is within the proper limit. Also high trade surplus builds forex reserves where high trade deficit erases forex reserves.