![]() ![]() Trade surpluses are not necessarily indicators of a country’s strong economic health, and trade deficits are not necessarily indicators of industrial decline. Using more products made at home will reduce the country’s reliance on exports and potentially contribute to a trade surplus. ![]() Another factor that can alter the balance of trade for a country is a growth in the rate of consumption of domestically produced products. Each year the Christmas retail season in the United States, for example, promotes an increase in exports of certain popular products from China and other countries having strong, low-cost manufacturing bases. Some factors that can shift trade surpluses and deficits are seasonal. The country’s trading partners will pay less for the oil, which shifts the balance of trade with them and potentially contributes to a trade deficit in the oil-producing country. For example, if the global price of crude oil drops, any country that is exporting oil sees the value of its product go down. Global pricing is one of many factors that affect the movement of products between countries and the surpluses and deficits that countries experience. During the days of the Silk Road, ancient Rome eagerly bought large amounts of Chinese silk, although China wanted little of Rome’s products except glass. Chinese goods have historically been relatively cheap to manufacture and sell abroad, and China has sold more to other countries than it has bought from them, resulting in consistent trade surpluses. Over time, Chinese consumers also developed an interest in goods from the West, including cosmetics, silver, and perfume.Įven during ancient times, Chinese goods were heavily exported. In addition to silk, Europeans began to rely on the Silk Road for other Asian goods including porcelain, spices, and eventually gunpowder and paper. The route was originally established to carry Chinese silks from China to the West. The Silk Road connected China with civilizations in the West such as Greece and Rome. Although modern theories of trade surpluses and trade deficits have evolved out of sophisticated economies, the basic concepts behind them are old.Īn example of an ancient system that promoted trade between distant peoples is the Silk Road, a 5,000-mile-long network of trade routes through southern Asia, the Middle East, and Europe that was used by traders and travelers from 200 BC to the Middle Ages. When Did It BeginĬountries and territories have bought and sold each other’s products for thousands of years. And by July 2006 the list was made up of Hong Kong, Australia, the United Arab Emirates, The Netherlands, and Panama. By January 2006 this top-five list had shifted to Canada, Mexico, China, Japan, and Germany. For example, in May 2005 the United States had the greatest trade surpluses with The Netherlands, Hong Kong, Australia, the United Arab Emirates, and Singapore. The United States trades goods and services with most of the world’s other countries, and the flow of products between countries is continually changing. A country may have trade surpluses with some countries and trade deficits with others. Every country that trades goods and services internationally must manage the inflow and outflow of the products so that the overall economic effects on the country of trading are beneficial. For instance, when American rice brokers import rice that is grown in Indonesia, the American rice market becomes more diverse, and American consumers who buy rice are provided with more choices. ![]() Because the values of a country’s exports and exports are not likely to be exactly the same, most countries operate with a trade imbalance.Ĭountries trade goods and services with one another because it helps them expand their markets. On the other hand, if the balance of trade is negative (if the country imports more than it exports), it has a trade deficit, or trade gap. If the balance of trade is positive (that is, if the country exports more than it imports), it has a trade surplus. The balance of trade for a country is the difference between the monetary value of the country’s exported products (goods and services) and of its imported products over a certain period of time. Trade Surplus and Trade Deficit What It Means ![]()
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