The trade balance is a certain part of the payment payment, which characterizes the state’s trade relations with other countries. As its components there are import and export of goods. Thus, the trade balance represents the difference between the volumes of imports and exports of various goods. If there is a significant predominance of exports over imports, then this indicates that a sufficiently large influx of foreign currency is carried out in the country, as a result of which the exchange rate of the national currency begins to increase. Similarly, if the trade balance shows that there is too much predominance of imports over exports, then this indicates that the goods of this country have a rather low competitiveness abroad. This information is published every month, however currency market often reacts poorly to this information.
What it is?
As mentioned above, the country's trade balance is the ratio of the cost of import as well as export of certain products for a separate period of time. The foreign trade balance, in parallel with the actually paid contracts, also includes those transactions that were carried out on credit. With actually paid contracts, the foreign trade balance is a separate element of the country's balance of payments.
What is he showing?
Russia's trade balance is one of the most important indicators that reflect how effectively a country participates in international trade, as a result of which it represents a separate part of the balance of payments. This balance is the ratio between the sum of prices of goods that were exported abroad, as well as the sum of the value of products that were imported into the country. Initially, a detailed analysis of exports is carried out for the reason that it directly affects how much the economy grows.
Import, in turn, determines the demand for goods directly within the country, and if import grows, then formation of stocks is determined, which may indicate a possible further slowed growth in sales. The trade balance formula can show different results, since they are highly dependent on the exchange rate, which adjusts the nominal amount of proceeds from imports in national currency.
Why is it needed?
In the predominant majority of cases, the trade balance formula is calculated for the year and includes the cost of all goods that were purchased or sold on an instant payment basis, delivered on credit or even absolutely free of charge in the form of government assistance or a present. It should be noted that, net of the latest indicators, the active trade balance is entered directly into the balance of payments.
The active part of this balance sheet reflects the export of products that were produced, mined or grown in the country, as well as all kinds of goods that were previously imported into the country from abroad and subsequently subjected to certain processing. The passive part includes the import of foreign products for domestic consumption or processing with further export. The difference between the price of imports and exports is the trade balance. A trade surplus is a situation in which the export price is higher than the import price, otherwise the balance is called passive. If in the trade balance the passive and active parts are equal, then it is called the "net balance".
How is it made up?
The compilation of the trade balance is carried out by authorized financial statistical, as well as foreign trade bodies of each individual country. It is worth noting that if the trade balance of a trading enterprise is considered, then in this case it is determined by the department of the relevant specialists.
These calculations are carried out in order to determine the foreign economic position of a company or a country, to clarify the level of competitiveness of its own products, as well as the purchasing power of the national currency used. The technology for calculating the value of imports and exports in different countries differs in its features, which makes it difficult to compare the relevant indicators.
Recommendations
The UN Statistical Commission makes recommendations to all countries to use the only technology in relation to the system itself, as well as the basis for accounting price indicators in their own foreign trade. In particular, when forming the trade balance, it is necessary to take into account the price of all imported goods, based on the FOB, that is, the price of the imported goods includes its price at the border or at various output ports of the country of sale, as well as all kinds of expenses associated with insurance or same delivery of products to the border of the consumer country. In this case, the price of the exported goods bears all the costs of the seller associated with the delivery of goods to the outlet port or to their own border, including all kinds of duties and other similar charges.
The economy will directly depend on the type of trade balance. In this regard, in the overwhelming majority of cases, when compiling the trade balance, countries are fully consistent with the technology recommended by the UN Statistical Commission. Approximately 30 countries record import and export prices based on FOB.
The trade balance of the capitalist countries
The balance of the capitalist countries includes the spontaneous nature of economic development, the aggravation of the situation on the current sales market, inflation, the currency crisis and many other processes. The uneven political and economic development of capitalism is reflected in a change in the balance of power between several competitors, as well as in a significant aggravation of the trade war between countries or the customs and economic groups of various imperialist states.
In the current practice of the capitalist countries, such methods of equalizing the trade balance as the introduction of customs duties, quantitative restrictions on the import of certain products, various credit and tax concessions, devaluation, revaluation, export financing from the budget, and the introduction of a plurality of exchange rates have become quite widespread. also a number of other methods.
How is this reflected?
If the whole world acquires export goods of a certain country, but at the same time, domestic buyers also prefer to buy domestic goods, then in this case we can say that the economy of this country is in good condition. At the same time, the trade deficit shows that the goods of this state are not the most competitive, and its residents must take certain actions in order to protect their own standard of living.
However, such an analysis is fair if the reason for the changes in the trade balance is a decrease or increase in demand for goods of this state, but it is worth noting that in fact, many other reasons can also influence this indicator. , including also a good investment climate, which generates an inflow of investments into the country, and consequently, an increase in purchases of equipment abroad,which ultimately leads to a trade deficit, despite the fact that the state of the economy of this state does not get worse.
Current account balance
The current account balance can be called the most informative, as it includes absolutely all flows of assets, including official and private, which are associated with the movement of various services and goods. The positive current account balance indicates that the country's loan has higher rates than the debit for items of movement of services and goods, and also demonstrates the volume of obligations of non-residents with respect to residents.
In other words, if there is a surplus, then this indicates that this country is a net investor relative to other states. At the same time, if there is a deficit in current operations, this indicates that this state is turning into a net debtor over time and should pay for additional net import of products.
How important is it?
During the development of the economic school of mercantilists, equilibrium was established in accordance with the terms of the balance of the account of existing operations, while this balance did not take into account capital flows, as well as all kinds of changes that occurred in the gold and currency reserves of a particular country. Thus, the main goal of economic policy in this case was to maximize the current account surplus in order to ensure the accumulation of gold in the country. Today it is already obvious that such a statement is not unfounded, because it is the state of the active operations account that directly affects the real income of the state, as well as the standard of living of people living in it.
Thus, in the process of integrating the active operations account into the existing system of national accounts, it can be determined that the occurrence of a deficit in this account indicates that the country's expenditures significantly exceed its revenues, which cannot be financed in any other way than through an influx of foreign long-term borrowed capital.
Features of the closed economic system
In a closed economic system, savings should have the same value as investments, while in an open economy these indicators may differ from each other depending on the state of current accounts. If there is an excess of imports over exports, this implies that investments have a higher value than saving by the deficit amount, which cannot be present if there is no inflow of long-term foreign capital aimed at financing this deficit.
Possible risks
However, there is a danger that the current account deficit will persist through long-term capital inflows for several reasons. This primarily concerns the high liquidity of the instruments used to service this capital inflow. The country's economy is highly dependent on the state of world money and financial markets, which are extremely susceptible to various speculative price fluctuations.
