A country’s trade balance is defined by the following formula: Country balance = Export result – Import resultExport is the sale of a good or service produced on the national territory of a country and sold to a company or agent present in a foreign country.An import is the purchase of a good or service from a company or agent present on national territory from another company or agent abroad. The
functioning of exchanges in different currencies:
When the United States exports a good to France, for example, it receives a payment in euros. This amount in euros will allow them to import European goods later on. A country’s trade balance is therefore used to obtain an overview of currency inflows and outflows and to ensure that the country in question has enough foreign currency to support its international trade.
What does a positive trade balance mean?
If a country’s exports exceed its imports, it is said that its trade balance is in surplus. This suggests that the country is competitive and exports a lot. However, it may also indicate that its import rates are low because its growth is low. When looking at a country’s trade balance, it is not only necessary to look at whether its result is positive or negative, but also to look in detail at the elements that constitute it in order to know what are the real elements that influence this figure, while if a country’s imports are higher than its exports, it is said that the country’s trade balance is in deficit.
a globalized economy, the trade balance is not the only indicator to be taken into account when assessing a country’s international activity. Indeed, an American company that produces in France makes profits that are not recorded in its trade balance, even if this production is a source of currency for it, and in order to take into account the profits of its national companies established abroad, it is interesting to use the current balance of this country.