What is a Balance of trade?

Balance of trade is just a smaller part of balance of payments. Balance of payments is a statement which summarizes the balance of trade, the balance of services, balance of unilateral transfers, and balance of payment on capital account.    The idea behind the balance of payment is to see whether export of goods of a country matches with the import of goods of that country. If a country’s export of goods is more than its import of goods we call it as positive or favourable trade (trade surplus) of that country. When a country’s import of goods is more than the export of goods we call it as negative or unfavourable trade (Trade deficit) of that country.

The balance of services relates to transactions involved in payment and receipt for services such as shipping, insurance, travel and tourism, transfer of interest, migrant remittances, interest and dividend payments, etc. These services are called invisibles. The balance of trade does not include any of payments or receipts related to invisible services.  Further, the balance of trade does not include capital transactions in the form of payments and receipts due to transfer of funds for acquiring assets, extension of credits and loans, investments etc. In the other words Balance of trade doesn’t include overall record of all economic transactions of a country with the rest of the world; but it deals only with the transactions of export and import of visible goods.

The balance of trade is also referred to as the trade balance or the international trade balance.

Related article: What is Balance of Payments?