How to Calculate Trade Balance

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In the global economy, each country has a complicated accounting record of what it exports to all other countries and what it imports from these same countries. If you focus on the exports and the imports between two separate countries, you can figure out the balance of trade between the two. This same formula works when looking at the total imports and exports between one country and the rest of the world. This figure isn't just an accounting placeholder; it's important for global politics and for deciding the relative power between two nations. Trade has been used as both a carrot and a stick in political negotiations, making the trade balance a crucial piece of information for those who work in international affairs.

The Value of a Trade Balance

International trade can be less about finances and business and more about power politics between two or more countries. Richer countries can use trade as a bargaining chip to push their political agendas onto poorer countries. One of the less successful examples of this is the Cuban trade embargo in the United States. The U.S. has held a trade embargo against Cuba since the early 1960s, in an effort to improve human rights and convert the island nation to a democratic form of government.

The trade balance can also be an important indicator of the health of a country's economic way of life. In general, if a country imports more goods than it exports for a long period of time, its current spending habits aren't self-sufficient. This isn't a healthy economy that will sustain itself for any length of time, but rather one that will need to make major changes if it wishes to avoid an eventual economic collapse.

How to Find a Country's Trade Balance

The trade balance is based not only on a country's goods but also its services. If a country imports more of these goods and services than it exports, it's said to have a trade deficit. On the other hand, if this same country exports more goods and services than it imports, it has a trade surplus. In each pair of global entities, there will be one with a surplus and one with a deficit. The way to calculate this balance of trade is to take the total value of all imports and subtract the total value of all exports between the two countries, or between one country and the rest of the world.

For example, in March 2018, the United States exported $6,782.2 million of goods and services to the United Kingdom. In that same period, the U.S. imported $5,183.8 million of different goods and services. If you subtract the exports from the imports, you'll see that the U.S. had a trade surplus over the U.K. of $1,598.4 million in that month.