Trade balance (or balance of trade) is the difference between merchandises exports and IMPORTS in a country’s BALANCE OF PAYMENTS. While a country’s balance of payments must, by definition, be balanced, its trade balance can be either positive or negative. Trade balance is the merchandise account in a country’s current account—that is, the sum of merchandise imports, SERVICES, INVESTMENT, and unilateral transfers into and out of a country. For decades after World War II, the United States had a favorable (positive) trade balance, but beginning in the 1970s U.S. merchandise imports exceeded exports, creating a negative trade balance. According to MERCANTILISM, a favorable trade balance was desirable, since it meant a country would accumulate greater quantities of gold. In Political Discourses (1752), Scottish philosopher David Hume challenged the mercantilist view, arguing that increases in gold would increase a country’s MONEY SUPPLY, thereby increasing prices and wages, which would eliminate the trade surplus. Trade balances can be influenced by a country’s international trade policies. For example, for many years Mexico pursued import-substitution-industrialization, actively subsidizing domestic companies to produce PRODUCTs that were previously imported. More recently, with the NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA), Mexico is pursuing export development, importing equipment and technology to produce goods for export to the United States and elsewhere.
See also EXPORTING.