Achieving Trade Balance: Trade Deficit and Surplus Examples

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  • 0:01 Intro and Review
  • 1:06 Trade Balance
  • 3:07 Trade Deficit Examples
  • 5:20 Trade Surplus Examples
  • 6:59 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Find out what trade balance, trade deficit, and trade surplus are. Learn about some recent examples that help clarify trade deficit and surplus. Explore what countries have a surplus and what countries have a deficit.

Basics of Trade Deficits and Surpluses

Much like you manage and monitor the inflows and outflows of your own finances and cash in your checking account, so do economists and countries when it comes to their trade balance. There may be many underlying reasons why you personally run a deficit or surplus in your bank account from month to month. The same can be said for a country's trade balance. Before we dive into some examples of trade deficits and surpluses, let's review the basics.

Simply defined, a country's trade balance, also called balance of trade, is the calculation of its exports minus imports. The balance can also be understood as how many goods and services are being sold to foreign countries minus how many goods and services our domestic citizens are buying from foreign countries. A balance of trade surplus happens when the value of all exports exceeds the value of all imports. A balance of trade deficit is when the value of all imports exceeds the value of all exports.

Trade Balance

So, do you think the U.S. has a trade balance surplus or deficit? If you chose deficit, you are correct. The U.S. has the world's largest trade deficit and has run a trade deficit since 1975. In 2013, the deficit in goods and services was more than $472 billion! That means we imported and bought a lot more electronics, raw materials, oil, and other goods than we sold to foreign countries. You might ask yourself, is that a bad thing? Seems like it might be. Those arguments and discussions are beyond the scope of this lesson, but the short answer is, it depends.

For the purpose of this lesson, what you need to know is that there are many factors that can affect the balance of trade. A few of these are exchange rates, currency valuations, economic growth, income of citizens, inflation, recessions or growth in other countries, and the competitiveness of domestic firms.

While achieving a perfect trade balance may not be practical or even in the best interest of a country, it is important to briefly discuss the concept in theory. A perfect trade balance would be a situation where a country would import only as much as it exports, leading to trade and money flows that are balanced. A country can balance its trade either on a trading partner basis in which total money flows between two countries are equalized, such as between the U.S. and Canada, or it can balance the overall trade and money flows so that a trade deficit with one country, such as China, is balanced by a trade surplus with another country, such as Brazil.

Now that you understand the concept of a perfect trade balance, let's look at some examples of the more practical and common situations where a trade deficit or trade surplus exists.

Trade Deficit Examples

General Calculation

If the United States imported $950 billion in goods and services last year but only exported $750 billion in goods and services to other countries, what would the trade deficit or surplus be? The answer is the United States would have a trade balance of negative $200 billion, or a $200 billion trade deficit.

1990s Economy

In the 1990s, the U.S. economy was growing much faster than the economies of America's major trading partners. As a result, Americans were demanding and purchasing foreign goods, or imports, at a much faster pace than other countries were buying American goods, or exports. Additionally, other events, like the financial crisis in Asia, led to currencies in other countries falling in value, making it much cheaper to buy foreign goods than American goods.

Some economists argued that the deficit, which was largely driven by cheap foreign imports, helped prevent inflation. This meant that many of the goods we were buying were cheaper and ultimately meant that every dollar in our pocket went farther. On the other end of the spectrum, some politicians and leaders believed that a new surge of cheap imports would damage domestic industries and make it tough for them to compete, ultimately leading to potential loss of jobs.

Country by Country (U.S. & Mexico)

You can look at deficits as a whole, such as the $472 billion 2013 U.S. deficit, or you can look at them country by country. For example, the trade deficit for the United States with Mexico was approximately $54 billion in 2013! The U.S. sold Mexico over $226 billion of goods, but we bought or imported nearly $280 billion of goods. It is important to note that some of the largest trading partners that the U.S. often runs yearly deficits with are China, Japan, Germany, Mexico, and Canada.

Trade Surplus Examples

Now some examples about trade surpluses:

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