Trade balance and its characteristics

Historically, foreign trade is the initial form of economic international relations. With its help, all national economies are linked into a single world economy. Foreign trade determines the division of labor between countries, which, with the development of economic relations, is increasingly being improved and deepened.

An important place is occupied by the indicators of foreign trade in the balance of payments, which includes the trade balance, income and payments for services, income from foreign investment, non-commercial payments, foreign exchange reserves, short-term and long-term capital flows.

The trade balance is determined by the ratio of exports and imports of goods. Due to the fact that the bulk of foreign trade operations are made on credit, there are some differences between the indicators of trade made for the relevant period and the actual receipts and payments.

The economic importance of the deficit or asset of the trade balance of a particular country depends on its place in the world economy, on economic policy and on the nature of its relations with partner countries. For countries that are lagging behind the leaders in terms of economic development, the active trade balance becomes a source of foreign exchange earnings to pay obligations to other countries and other items in the balance of payments.

Some developed industrial countries are using the surplus to create a second economy abroad. The passive trade balance is considered an undesirable phenomenon, this characteristic is a sign of a weak external economic position of the state. A passive balance is inherent in developing or backward countries that do not have enough foreign exchange earnings. This is of great importance for the industrial development of the country.

Of course, a bad sign is a reduction in exports as a result of a decrease in demand for goods and services from one country in other states. However, if a negative trade balance arises, for example, with an increase in imports of investment products, as a result of which domestic production is growing, in this case, the negative balance is not an occasion for a negative assessment of the economic state of the country.

Thus, the deficit or surplus of the trade balance is assessed only on the basis of analysis leading to such a result circumstances. For example, the formed positive balance in the trade balance of the Russian Federation is not a basis for an optimistic assessment of this situation. Due to the fact that the main export item of Russia is natural resources, mainly raw materials are exported from the country, rather than goods, it can be said about the low level of state production and about not the best state of the economy.

If the negative balance increases, then the trade balance worsens. This indicates that the country overseas spends more money than it receives, resulting in an increase in the supply of the national currency on the part of the participants in the foreign exchange market, and the demand for foreign money is growing. In this case, conditions are created for the emergence of trends in the depreciation of its own currency. And, in the opposite case, with a positive trade balance, there are tendencies to increase the exchange rate of the national currency.

Obviously, as a result of the devaluation, the depreciation of its own currency, the exporters' activities are stimulated, and imports become less profitable. Thanks to this change in the exchange rate, prerequisites are created to increase export operations and reduce imports. As a result, there is a decrease in the negative and the emergence of a positive trade balance.