A trade surplus can create employment and economic growth, but may also lead to higher prices and interest rates within an economy. A country’s trade balance can also influence the value of its currency in the global markets, as it allows a country to have control of the majority of its currency through trade.

Balance of trade (BOT) is the difference between the value of a country’s exports and the value of a country’s imports for a given period. The balance of trade is also referred to as the trade balance, the international trade balance, commercial balance, or the net exports.

Key Takeaways The balance of trade impacts currency exchange rates as supply and demand can lead to an appreciation or depreciation of currencies. A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency.

Balance of trade, the difference in value over a period of time between a country’s imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union (e.g., dollars for the United States, pounds sterling for the United Kingdom, or euros for the European Union …

Economists generally agree that neither trade surpluses or trade deficits are inherently “bad” or “good” for the economy. A positive balance occurs when exports > imports and is referred to as a trade surplus. A negative trade balance occurs when exports < imports and is referred to as a trade deficit.

Cons of Trade Deficit

• Harmful for Developing Countries. Usually, a developing country puts efforts for boosting its domestic market & industries and focuses on export rather than an import.
• 2 Job Outsourcing.
• Leads to Foreign Ownership.
• Reduction in Currency Value.

In the simplest terms, a trade deficit occurs when a country imports more than it exports. A trade deficit is neither inherently entirely good or bad. A trade deficit can be a sign of a strong economy and, under certain conditions, can lead to stronger economic growth for the deficit-running country in the future.

If a country has a trade deficit, it imports (or buys) more goods and services from other countries than it exports (or sells) internationally. If a country exports more goods and services than it imports, the country has a balance of trade surplus.

Tourism deficit refers to the ▶ travel balance situation in which expenditures arising from travels of residents abroad exceed the ▶ interna- tional tourism receipts from foreign tourists. By implication, on a global scale, a large, positive tourism balance tends to belong to less developed countries.

Causes of Trade Deficit

• Lower Tariffs / Trade Barriers. When government signs a new trade deal and reduces tariffs, it creates competition.
• Low Productivity. When a nation experiences low productivity growth in relation to others, it can find itself become less competitive.
• Strong Currency.
• Reliance on Specific Exports.

A trade deficit reduces the incomes of domestic workers, pushing many into lower income brackets. Families with lower incomes generally find it much harder to save. Therefore, increasing trade deficits can and do reduce national savings.

What Are the Advantages of International Trade?

• Increased revenues.
• Decreased competition.
• Longer product lifespan.
• Easier cash-flow management.
• Better risk management.
• Benefiting from currency exchange.
• Access to export financing.
• Disposal of surplus goods.

Language Barriers. Despite the availability of online translators, language is still one of the major disadvantages of international trade. While tools like Google Translate and SDL can be used to formulate instructions and communications in another language, they are far from foolproof.

The five main reasons international trade takes place are differences in technology, differences in resource endowments, differences in demand, the presence of economies of scale, and the presence of government policies.

Countries that are open to international trade tend to grow faster, innovate, improve productivity and provide higher income and more opportunities to their people. Integrating with the world economy through trade and global value chains helps drive economic growth and reduce poverty—locally and globally.

International trade brings a number of valuable benefits to a country, including: Trade increases competition and lowers world prices, which provides benefits to consumers by raising the purchasing power of their own income, and leads a rise in consumer surplus.

International trade opens new markets and exposes countries to goods and services unavailable in their domestic economies. Trade agreements may boost exports and economic growth, but the competition they bring is often damaging to small, domestic industries.

Increased international trade, and the lowering of barriers to such trade, frequently results in improved international relations, but it can also lead to trade wars and tariff disputes.

The three major barriers to international trade are natural barriers, such as distance and language; tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff barriers to trade include import quotas, embargoes, buy-national regulations, and exchange controls.