Balance of Trade

• Author: Gary Tripp
• Pages: 47-49

Page 47

Even though the United States is well endowed with both human and natural resources, as well as the ways and means to use them in the production and distribution of goods and services, it cannot provide its people with all that they want or need. For this reason, the United States engages in international trade, which is the exchange of goods and services with other nations. Without international trade, goods would either cost more, not be available, or, if available, be of unreliable supply.

On a broader level, the world's endowment of natural resources is both uneven and capricious. For example, Canada, with its huge forests, is a major producer of lumber and paper products; the Middle East has rich oil reserves; and the coastal regions of the world are leaders in the fishing industry. Ironically, however, each of these nations (or regions) may lack resources (or goods) that are abundant elsewhere.

Without international trade, each country would have to be totally self-sufficient. Each would have to make do only with what it could produce on its own. This would be the same as an individual being totally self-sufficient, providing all goods and services, such as clothing and food, that would fulfill all wants and needs. International trade allows each nation to specialize in the production of those goods it can produce most efficiently. Specialization, in turn, allows total production to be

Table 1

Four largest U.S. trading partners: 2004

(Merchandise exports and imports, in millions)

SOURCE: U.S. Bureau of the Census, Foreign Trade Division, 2004.

Four largest U.S. trading partners: 2004 (Merchandise exports and imports, in millions)
Rank	Country	Exports	Imports	Trade Balance	Percent of Total Trade
Note: Trade Balance = Exports − Imports
SOURCE: U.S. Bureau of the Census, Foreign Trade Division, 2004.
1	Canada	190	256	−66	19.5%
2	Mexico	111	156	−45	11.6%
3	China	35	197	−162	10.1%
4	Japan	54	130	−76	8%

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Page 48

greater than would be true if each nation attempted to be completely autonomous.

EXPORTS AND IMPORTS

Goods and services sold to other countries are called exports; goods and services bought from other countries are called imports. The Foreign Trade Division of the U.S. Bureau of the Census states that U.S. exports include such goods as corn, wheat, soybeans, plastics, iron and steel products, chemicals, and machinery, while imports include such goods as chemicals, crude oil, machinery, diamonds, and coffee.

The balance of trade, also known as net exports, is the difference between the dollar amount of merchandise exports and the dollar amount of merchandise imports. The United States has many trade partners. Table 1 shows the U.S. balance of trade with its four largest trading partners.

In order to have a trade surplus, a country must export (sell) more tangible goods than it imports (buys). If the opposite were true, a trade deficit would exist. On an individual nation-to-nation basis, a country can have a trade surplus with one country, yet a trade deficit with another. The Bureau of the Census records indicated that in 2004, the United States had a trade deficit with each of its four largest trading partners. Table 1 also reveals the total percentage of trade accounted for by the...