Balance of Trade

Statement

The balance of trade (BOT) measures the difference between an economy’s export revenue (X) and import expenditure (M). It is also known as net exports (X − M).

Notes

When export revenue exceeds import expenditure ($X > M$) the economy runs a trade surplus; when import expenditure exceeds export revenue ($X < M$) it runs a trade deficit. Both goods and services are traded: trade in goods is visible trade and trade in services is invisible trade.

The balance of trade is the largest component of the current account, itself part of the balance of payments. As net exports are a component of aggregate demand, a change in the balance of trade feeds directly into national income — the macroeconomic effects of an increase are set out in the consequences of a balance-of-trade increase, and the reasons a country runs a deficit in the causes of a balance-of-trade deficit.