Trade balance

The balance of trade is a systematic record of transactions related to goods exchanged between residents of a particular country on the one hand and residents of the rest of the countries of the world on the other hand in a specific period. The trade balance consists of two main items:

Exports: These are goods and services that are exported from a country abroad.

Imports: These are goods and services that are imported from abroad into a country.

The balance of the trade balance is determined by comparing the value of exports with the value of imports. If the value of exports is greater than the value of imports, the balance is positive, and this trade balance is called the surplus trade balance. However, if the value of imports is greater than the value of exports, the balance is negative, and this trade balance is called the trade deficit balance.

The economic impact of the trade balance
The trade balance has a major economic impact on the economy, as it affects:

• Economic growthA surplus in the trade balance provides the foreign currency needed to finance investments and economic growth, while a deficit in the trade balance leads to the depletion of foreign currency reserves and weak economic growth.
  
  
• The unemploymentA surplus in the trade balance provides new job opportunities in productive sectors, while a deficit in the trade balance leads to a reduction in demand for local goods and services, and thus to an increase in unemployment.
  
  
• exchange rateA surplus in the trade balance leads to an increase in the value of the local currency, while a deficit in the trade balance leads to a decrease in the value of the local currency.

The economic impact of the surplus on the trade balance

A surplus in the trade balance indicates that the economy has production capacity in excess of its internal needs, and it also indicates that the goods exported from this economy are able to compete in foreign markets. The surplus in the trade balance leads to a number of positive economic effects, including:

• Increase foreign currency reserves: Foreign currency is obtained through exports, which helps finance investments and economic growth.
  
  
• Increase in the value of the local currency: The surplus in the trade balance leads to an increase in demand for the local currency, which leads to an increase in its value.
  
  
• Reducing dependence on imports: The surplus in the trade balance helps reduce the need for imports, which saves foreign currency and increases self-sufficiency.
  
  
• Increasing job opportunities: The surplus in the trade balance leads to increased demand for local goods and services, which leads to increased production and the provision of new job opportunities.

The economic impact of the trade deficit

A deficit in the trade balance indicates that the economy suffers from a deficiency in domestic production, which forces it to import to meet its needs. The trade deficit leads to a number of negative economic effects, including:

• Decrease in foreign currency reserves: Where foreign currency is used to finance imports, which leads to a decrease in foreign currency reserves.
  
  
• Decrease in the value of the local currency: The deficit in the trade balance leads to an increase in the supply of the local currency, which leads to a decrease in its value.
  
  
• Increased dependence on imports: The deficit in the trade balance increases the need for imports, which weakens self-sufficiency.
  
  
• Increased unemployment: The deficit in the trade balance leads to a decrease in demand for local goods and services, which leads to reduced production and increased unemployment.

In general, the trade balance plays an important role in the economy, as it reflects the performance of the economy and the ability of the economy to meet its needs.