The government, acting under the pressure of lobby groups, decided to issue protectionist measures to reduce the amount of imported meat coming into the country. A nation’s net exports are the value of its total exports minus the value of its total imports. In short, the BOT figure alone does not provide much of an indication regarding how well an economy is doing.

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balance of payment

A trade balance is when exports are less than imports. Use the balance of trade to compare a country’s economy to its trading partners. The trade balance is a prominent economic indicator for the relative strength of a domestic economy. It is simply calculated by summing the total exports of a nation to the rest of the world, and subtracting the total value of imported goods and services of a nation.

Calculating the Balance of Trade

This is your one-stop encyclopedia that has numerous frequently asked questions answered. Key Takeaways A positive trade balance surplus is when exports exceed imports. Conversely, if the imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. Japanese investors recently bought the Essex House Hotel in New York City. The sight of Japanese investors buying Rockefeller Center and Columbia Pictures, coupled with a ballooning surplus in Japan’s trade with the United States, has frightened and angered many Americans. Exactly how this power would be exercised was always left a bit vague.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. That is only possible if the capital report has a large surplus.

What Is a Favorable Balance of Trade?

That results in more employment as companies employ more workers and generate more income. It can be either because both trading countries are satisfied with the trade or are significantly damaged by the imbalance. Here are all the possible meanings and translations of the word favorable balance of trade. Limits the number of products in certain categories a nation can import.


The balance of trade is typically measured as the difference between a country’s exports and imports of goods. To calculate the balance of trade, you would subtract the value of a country’s imports from the value of its exports. If the result is positive, it means that the country has a trade surplus , and if the result is negative, it means that the country has a trade deficit .

Who are the most important trading partners of Macedonia?

It is also for their businesses to achieve a competitive edge in expertise by exporting. As a result, more jobs are created as businesses hire more employees and bring in more revenue. A favorable balance of trade describes the scenario in which a country’s exports exceed the value of its imports. On the other hand, an unfavorable balance of trade, also known as a trade deficit, occurs when a country imports more goods than it exports. The Balance of Trade is an economic measure calculated by subtracting the total amount of imported items to the total amount of those exported.


Discourage domestic consumption of specific products by introducing excise duty and export more goods. There are several factors that contribute to Germany’s favorable balance of trade. One is its highly skilled workforce, which is able to produce high-quality goods that are in demand globally. Germany also has strong research and development capabilities, which have led to the development of innovative products that are sought after by foreign buyers. Domestic companies in such nations do not gain valuable skills required to produce value-added products on the market because they are the primary raw resource supplier. As a result, the financial systems of such nations become increasingly dependent on international commodities prices.

The Danger When Imports Exceed Imports

It could also be signage a corporate headquarter transfers to its foreign office. A trade surplus is harmful only when the government uses protectionism. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. However, there’s been no strong evidence that a negative import/export balance is hurting the economy of the United States.

  • Countries with a favorable trade balance can often reduce shipping and import costs due to their strong trading relationships with other countries.
  • Also, the price of commodities, labor relations, trade policy, and disputes over standards can play significant roles in altering the trade balance of a nation.
  • Here are the good categories, along with the total dollar value and percentage of total exports that each category represents on the global market.

Favorable Trade Balance Many countries implement trade policies that encourage a trade surplus. Yes, a nation can have a favorable balance of trade and an unfavorable balance of payments. This is so because a favorable balance of trade means the exports are more than a country’s imports. … Thus a country can have an unfavorable balance of payment while having a favorable balance of trade. In recent years, Germany’s favorable balance of trade has been a significant contributor to its economic success.

The existing account also takes into consideration all payments across country borders. Essentially, the trade balance is easy to measure as all goods and services pass through the customs office and are thus recorded. A weak currency is one of the common reasons for unfavorable BOT, as it makes exports expensive while imports become cheaper. While the BOT is the import-export difference, the balance of payment is the transactional record of a nation’s capital inflow and outflow. Macedonia exports mostly supported catalysts with precious metal or precious metal compounds as the active substance, ferro-nickel, iron and steel products (flat-rolled products), clothes, and petroleum oil preparations. A continuing surplus may, in fact, represent underutilized resources that could otherwise be contributing toward a country’s wealth, were they to be directed toward the purchase or production of goods or services.

A positive trade balance indicates a trade surplus while a negative trade balance indicates a trade deficit. The BOT is an important component in determining a country’s current account. The balance of trade is a part of the balance of payments and is represented in the current account, which also includes income from investments and transfers such as foreign aid and gifts.

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Posted: Sat, 25 Mar 2017 15:46:49 GMT [source] or international or non-governmental organizations provide it to address issues like terrorism, environmental degradation, pandemics, etc. Countries with a favorable trade balance can often reduce shipping and import costs due to their strong trading relationships with other countries. Each and every country in this world always wants to increase their exports. All the countries make policies or channelize their efforts for increasing their exports comparatively to their efforts. Do the guests really care who owns the hotel so long as they are pleased with their room? The reason modern mercantilists give is that the trade surplus generates funds that can be invested abroad in foreign stocks, bonds, real estate, companies, and so on.