Tips for Examining a Trade Balance, What is a trade balance? A trade balance is the difference between the value of goods exported by a country and the value of goods imported. The U.S. currently has a negative trade balance. Trade barriers may cause this imbalance, but these barriers are often temporary and are not harmful to a country’s economy. Nonetheless, a country’s trade balance is affected by the policies that it implements to increase domestic production. Below are some tips for examining a trade balance.
Bilateral trade imbalances
The term “bilateral trade balances” describes the difference in exports and imports of two countries. Some policymakers are concerned that rising bilateral trade balances are distorting international trade, but this is the wrong focus. Bilateral trade imbalances are closely related to asymmetric barriers to trade. A rise in one country’s bilateral trade deficit may also have spillover effects on third countries. Thus, it is important to understand what drives these imbalances and what to do to combat them.
Global trade imbalances
In recent decades, global imbalances have received much attention. They are growing both in absolute and relative terms, and are concentrated in a small group of economies. The cause of these imbalances is not entirely clear. The most obvious theory relates them to the price specie flow mechanism of the classical gold standard. While this mechanism has worked in most cases, in some cases it has not. The current debate centers on the causes of global imbalances.
U.S. current account balance
The difference between the U.S. current account balance and trade balance is that the former includes net exports of merchandise goods while the latter includes net rents, interest, profits, dividends, and current transfer payments. In addition to goods, the current account balance also includes services. The Lazear-Mankiw-DeLong discussion expanded its definition to include services, which alters the trade deficit.
Impact of trade barriers on trade balance
The overall economy suffers when countries place trade barriers. The barriers to trade raise prices and divert resources from more productive uses. While tariffs are often justified as necessary to protect local industries, they do not serve the economic interests of the entire country. Instead, these barriers reduce the amount of available goods for consumers and decrease employment. Thus, the ultimate cost of trade barriers is not a transfer of well-being between sectors but the permanent net loss to the economy.
Imports from China
The U.S. is a major exporter, and its trade surplus with China is large. In 2020, U.S. imports from China will amount to $434.7 billion, down 16.3 percent from 2019 but up 325 percent from 2001. China imports account for 18.6 percent of U.S. imports in 2020, and the United States was the largest importer of Chinese goods. In addition to goods, the United States also imported $370 billion worth of services from China, making it one of the world’s largest trade partners.
Imports from ASEAN
In 2020, the United States will account for a fifth of the region’s total exports. This figure will be up from just five percent in 2015. In 2018, ASEAN members were the leading source of U.S. imports, with Vietnam leading the way with 79.6 billion dollars. Other major sources of ASEAN exports are the EU-27, Japan, and South Korea. A substantial portion of the region’s trade will come from services, with the largest sectors of ASEAN based on transportation and other business services.
Effect of trade barriers on U.S. current account balance
The current account balance is the nation’s most complete measure of international transactions. It consists of three balances: goods and services, investment income, and net unilateral transfers. The goods and services balance is thought to be the most closely related to current consumption and production. The current account deficit reflects the differences in these balances. However, the investment income and net unilateral transfers balances are not directly related to current consumption and production.
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