Measuring Trade Relations

1. Measuring Trade Relations BCS-BE-8c. Describes the impact of international business activities on local, state and national economies.

2. Vocabulary 1. Balance of Trade 2. Balance of Payment 3. Trade Surplus 4. Trade Deficit

3. Balance of Trade the difference between a country’s total exports and total imports NOTE: a positive balance indicates a trade surplus and a negative balance indicates a trade deficit

4. Balance of Trade (cont.) • What affects Balance of Trade? • - The cost of production in the exporting economy versus those in the importing economy • - Cost and availability of raw materials, intermediate goods and other inputs; • - 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 • Prices of goods manufactured at home (influenced by the responsiveness of supply)

5. Balance of Payments the difference between the amount of money that comes into a country and the amount that goes out of a country

6. Balance of Payments (cont.) *Numbers are in billions of dollars

7. What is the difference in Balance of Trade and Balance of Payments? Balance of Trade refers to the export and import of visible items, i.e., material goods. It is the difference between the value of visible exports and imports. Visible items are those items which are recorded in the customs returns; for example, material goods exported and imported. Balance of Payments, on the other hand, is a more comprehensive concept because it covers (a) visible items (i.e., balance of trade or merchandise account) and (b) invisible items. Invisible items are those items which are not recorded in the customs returns; for example, services (such as transpiration, banking, insurance, etc.), capital flows, purchase and sale of gold, etc. Thus, balance of payments is a broader term than balance of trade.

8. Trade Surplus a situation in which a country exports (sells) more than it imports (buys)

9. Trade Deficit a situation in which a country imports (buys) more than it exports (sells)

10. Questions?