Editing Balance of trade (section)

==Explanation==
[[File:Balance of trade in goods and services (Eurozone countries).png|thumb|upright=1.4|Balance of trade in goods and services (Eurozone countries)]]
[[File:US Trade Balance from 1960.svg|thumb|upright=1.4|US trade balance from 1960]]
[[File:U.S. Trade Balance (1895–2015) and Trade Policies.png|thumb|upright=1.4|U.S. trade balance and trade policy (1895–2015)]]
[[File:U.K. balance of trade in goods (since 1870).png|thumb|upright=1.4|U.K. balance of trade in goods (since 1870)]]
The balance of trade forms part of the [[Current account (balance of payments)|current account]], which includes other transactions such as income from the [[net international investment position]] as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market).

Measuring the balance of trade can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by almost 1%; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal [[credit (finance)|credit]] or [[debit]] in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. While the accuracy of developing countries' statistics would be suspicious, most of the discrepancy actually occurs between developed countries of trusted statistics.<ref>{{Cite news |last1=Romei |first1=Valentina |last2=Cocco |first2=Federica |date=2017-09-24 |title=UK and US report trade surplus with each other |work=Financial Times |url=https://www.ft.com/content/82ebed88-9ede-11e7-8cd4-932067fbf946 |access-date=2023-08-15}}</ref><ref>{{Cite news|url=https://www.npr.org/sections/money/2018/03/21/595769659/trump-vs-trudeau-both-right-both-wrong|title=Trump vs. Trudeau: Both Right, Both Wrong|website=NPR.org}}</ref><ref>{{Cite web |last= |first= |date=2018-02-06 |title=The Daily — Comparing Canadian and US bilateral trade in goods data, 2014, 2015 and 2016 |url=https://www150.statcan.gc.ca/n1/daily-quotidien/180206/dq180206b-eng.htm |access-date=2023-08-15 |website=www150.statcan.gc.ca}}</ref>

Factors that can affect the balance of trade include:
* The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy ''vis-à-vis'' those in the importing economy;
* The cost and availability of raw materials, intermediate goods and other inputs;
* Currency exchange rate movements;
* Multilateral, bilateral and unilateral taxes or restrictions on trade;
* Non-tariff barriers such as environmental, health or safety standards;
* The availability of adequate foreign exchange with which to pay for imports; and
* Prices of goods manufactured at home (influenced by the responsiveness of supply)

In addition, the trade balance is likely to differ across the [[business cycle]]. In export-led growth (such as oil and early industrial goods), the balance of trade will shift towards exports during an economic expansion.{{Citation needed|date=May 2016}} However, with domestic demand-led growth (as in the United States and Australia) the trade balance will shift towards imports at the same stage in the business cycle.

The monetary balance of trade is different from the physical balance of trade<ref>{{cite web|url=http://stats.oecd.org/glossary/detail.asp?ID=6542|title=Physical Trade Balance, OECD Glossary of Statistical Terms|access-date=15 March 2018|archive-date=28 July 2020|archive-url=https://web.archive.org/web/20200728210929/https://stats.oecd.org/glossary/detail.asp?ID=6542|url-status=dead}}</ref> (which is expressed in amount of raw materials, known also as Total Material Consumption). Developed countries usually import a substantial amount of raw materials from developing countries. Typically, these imported materials are transformed into finished products and might be exported after adding value. Financial trade balance statistics conceal material flow. Most developed countries have a large physical trade deficit because they consume more raw materials than they produce.