What Is Balance of Trade (BOT)

 

Balance of trade (BOT) is the difference between the value of a country's imports and exports for a given period and is the largest component of a country's balance of payments (BOP).....
  

Understanding Balance of Trade (BOT)

Economists use the BOT to measure the relative strength of a country's economy. The balance of trade is also referred to as the trade balance or the international trade balance. A country that imports more goods and services than it exports in terms of value has a trade deficit. Conversely, a country that exports more goods and services than it imports has a trade surplus. The formula for calculating the BOT can be simplified as the total value of imports minus the total value of exports.

There are countries where it is almost certain that a trade deficit will occur. For example, the United States has had a trade deficit since 1976 because of its dependency on oil imports and consumer products. Conversely, China, a country that produces and exports many of the world's consumable goods, has recorded a trade surplus since 1995.

A trade surplus or deficit is not always a viable indicator of an economy's health, and it must be considered in the context of the business cycle and other economic indicators. For example, in a recession, countries prefer to export more to create jobs and demand in the economy. In times of economic expansion, countries prefer to import more to promote price competition, which limits inflation.

In 2019, Germany had the largest trade surplus by current account balance with Japan and China coming in second and third. Conversely, the United States had the largest trade deficit, even with the ongoing trade war with China, with the United Kingdom and India coming in second and third.