What is meant by the balance of trade?

The balance of trade refers specifically to the difference between a country's exports and imports. When a country exports more than it imports, it has a trade surplus, which is generally seen as a positive economic indicator as it implies that the country is selling more goods and services to other nations than it is buying from them. Conversely, a trade deficit occurs when imports exceed exports. This balance is a key component of a country's overall economic health and can influence currency strength, employment rates, and policy decisions.

Understanding the balance of trade helps in analyzing how a country interacts with the global economy, revealing trends about its competitiveness in the international market. It is a fundamental concept in international economics, impacting various aspects of economic policy and strategy.