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BALANCE OF TRADE

As individuals, private businesses, and government agencies buy and sell goods and services around the world, they create a balance of trade. International trade is composed of exports and imports. (Exports are the goods and services produced within a country and sold to foreign countries. Imports are the goods and services that a country buys from other countries.) A country's balance of trade represents the difference between the value of its exports and imports. If a country has a trade surplus, or a favorable balance, then it is exporting more goods than it is importing. On the other hand, a nation may experience a trade deficit or unfavorable balance when its imports are greater than its exports. Because the balance of trade is a result of foreign trade, a surplus is called the foreign trade surplus and a deficit is called the foreign trade deficit. The balance of trade is considered a key component of a country's economic health. Soaring trade deficits slow economic growth because as more goods are imported, demand for domestic products falls.

During the 1980s and 1990s the balance of trade became a major issue in the United States. In 1975 the United States had a foreign trade surplus of $10.4 billion, but afterwards it experienced foreign trade deficits. Although deficits are rarely good, it was not until 1983 that they became a serious problem. In that year, the U.S. foreign trade deficit started rising, going from $38 billion in 1982 to $170 billion in 1987. While the deficit decreased over the next five years it remained more than $100 billion each year. The U.S. foreign-trade deficit rose in 1993 to $115.8 billion. The top two trading partners for the United States were Canada and Japan; they, accounted for $70 billion of the trading deficit that year. The United States had a $10.7 billion trading deficit with Canada and a $59.3 billion trading deficit with Japan. In 1993 the United States had trading surpluses with the United Kingdom and the Netherlands—$4.7 billion and $7.4 billion, respectively.