balance of trade

balance of trade, relation between the merchandise exports and imports of a country. The concept first became important in the 16th and 17th cent. with the growth of mercantilism. Mercantilist theorists believed that a country should have an excess of exports over imports (i.e., a favorable balance of trade) to bring money, which they confused with wealth, into the country. They urged legislation to restrict the use of foreign goods, encourage exports, and forbid the export of bullion. The importance of a favorable balance of trade remained unchallenged until David Hume, Adam Smith, David Ricardo, and John Stuart Mill concerned themselves with theories on the adjustment of balance of trade. The classical theory of the mechanism is that a country whose exports fall short of its imports must export part of its stock of gold, thereby affecting its price structure and its ability to compete on the world market. Today the balance of trade is regarded as only one of several elements that make up the balance of payments of a nation; the U.S. Dept. of Commerce issues reports on the current status of the balance of trade in goods and services on a monthly basis. Since the 1980s the value of U.S. imports has greatly exceeded exports, resulting in large trade deficits that complicated U.S. relations with its trading partners, particularly Japan, China, and the United States' partners in the North American Free Trade Agreement, Canada and Mexico.

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2007, Columbia University Press. All rights reserved.

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