Components of the current account of the balance of payments: trade in goods

International trade and globalisation – Current account of the balance of payments

Components of the current account: Trade in goods

Think of a country’s trade in goods as a giant shopping spree across the world. - Exports are the goods the country sells abroad – like selling your handmade bracelets to friends in another city. - Imports are the goods the country buys from abroad – like buying a cool gadget from overseas. The difference between what you sell and what you buy is called the trade balance.

How to calculate the trade balance

1. Write down the total exports for the period.
2. Write down the total imports for the same period.
3. Subtract imports from exports: Trade Balance = Exports - Imports.
4. If the result is positive, the country has a trade surplus; if negative, a trade deficit.

Example: Let’s say the UK exported £200 bn and imported £250 bn. $$Trade\ Balance = 200 - 250 = -50\text{ bn}$$ The negative sign shows a trade deficit of £50 bn.