Trade Balance, Trade Deficits and Surplus Video Lecture | Business Economics for CA Foundation

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
while you personally run a deficit or
surplus and your bank account for
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
to find a country's trade balance also
called balance of trade is the
calculation of its exports - imports the
balance can also be understood as how
many goods and services are being sold
to foreign countries
- 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
so do you think the US has a trade
balance surplus or deficit if you chose
deficit you are correct the US has the
world's largest trade deficit and has
run a trade deficit since 1975 in 2013
the deficit and goods and services was
more than four hundred and seventy two
billion dollars 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
US 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
first the general calculation if the
United States imported 950 billion
dollars 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 two hundred billion dollar
trade deficit the 1990s economy in the
1990s the US 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 and 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 believe
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 you can look at
deficits as a whole such as the 472
billion dollar 2013 US 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 dollars in 2013 the u.s. sold
Mexico over 226 billion dollars of goods
but we bought or imported nearly 280
billion dollars of goods it is important
to note that some of the largest trading
partners that the US often runs yearly
deficits with our China Japan Germany
Mexico and Canada
now some examples about trade surpluses
country-by-country in 2013 the United
States exported over 44 billion dollars
worth of goods such as engines oil
aircrafts and electronic equipment to
Brazil alone the u.s. imported or
purchased twenty eight billion dollars
worth of goods this led to a trade
surplus with Brazil of sixteen billion
dollars the US had a similar surplus
with Australia at approximately 17
billion dollars in 2013 Saudi Arabia if
the United States has one of the largest
deficits it certainly begs the question
of what countries have large surpluses
Saudi Arabia has consistently had one of
the largest trade surpluses in the world
in 2011 their surplus was roughly 250
billion dollars Germany was close behind
at roughly 220 billion dollars nearly 90
percent of all of Saudi export earnings
come from the oil industry with nearly
20 percent of the world's petroleum
reserves Saudi Arabia is able to sell
and export huge quantities of oil to
many of the industrialized nations that
rely heavily on it for their way of life
this has resulted in Saudi Arabia having
very high incomes per capita and the
19th highest overall GDP in the world it
is important to note that some of the
largest trading partners that the US
often runs yearly surpluses with are
Hong Kong the Netherlands the United
Arab Emirates Australia and Brazil
in summary much like we monitor our own
cash and financial position so do
countries with their trade balance a
country's trade balance is the
calculation of its exports minus its
imports 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 the US 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 four hundred and seventy two
billion dollars although the u.s. ran an
overall deficit and it generally
accelerated through the 1990s it still
runs trade surpluses with certain
countries like Brazil and Australia on
the other end of the spectrum are Saudi
Arabia and Germany which have generated
over two hundred billion dollar trade
surpluses annually since 2011 many
things can affect whether a country runs
a surplus or deficit including exchange
rates currency valuations economic
growth income of citizens inflation
recessions or growth in other countries
and the competitiveness of domestic
firms it is important for countries to
understand why they are experiencing
trade surpluses or deficits and work to
achieve what they believe is a
sustainable balance for their country
on one hand trade deficits can lower
inflation through cheaper imports and an
economy but on the other hand they can
disrupt and threaten domestic firms and
jobs although there is much debate as to
whether trade deficits are actually
harmful to an economy in the short run
most economists believe large long-term
deficits can potentially be harmful to a
country's competitiveness and GDP if not
addressed at some point this is and will
continue to be a hot topic in the
political and economic arena of the
United States