Trade balance is an economic term that defines the difference between a country's exports and imports. Covers all products, goods and services, sold and purchased.
The trade balance reflects the economic situation of a country. When the volume of exports is greater than imports, we say that the balance is positive. We can also use the expression trade surplus.
If the opposite occurs, we import more than we export, which means that the balance is negative. This negative result is called trade deficit.
It is important to note that the trade balance does not consider the volume of products entering or leaving a country, but the money that results from the transaction.
Mercantilism
The idea that a nation's wealth depended on a favorable balance of trade emerged in the 15th century, when trade between states increased.
At this time, the fiefs were going through a transition process where power was increasingly centralized in the king's hand. We call this phenomenon National States or modern state.
In turn, the economic practices of that time were called Mercantilism.
Currently, the concept of having or not a favorable trade balance is relative and depends on the economic cycle a country is going through. If a country is in an economic boom cycle, the trade deficit can be good, as it will help keep domestic prices down.
On the other hand, the surplus in times of recession is positive, as it helps to create new jobs, attracts foreign currency and increases production.
Features
The trade balance of developed countries is characterized by the purchase of raw materials and the sale of industrialized goods.
As they have more technological and scientific knowledge, developed countries almost always have a positive trade balance (surplus).
The opposite happens with developing countries, which export raw materials, but need to import manufactured goods, which are more expensive.
In the process of selling raw material and transforming it into an industrial consumer good, the so-called added value increase.
In other words, the primary product is transformed by the industry, which requires more labor and structure. Therefore, the industrialized good has more value and raw material returns more dear to the person who sold it.
This is not to say that developing countries cannot have a surplus in their trade balance.
Added Value
Added value is the value added to a good or service when it is modified during the production sequence.
Let's look at the example of steel.
Brazil has iron ore deposits and steel mills that are capable of forming steel.
However, if we want a steel plate for certain types of machines, we would have to sell it to another country, where it would be transformed.
Later, Brazil would import this steel plate, whose raw material is Brazilian, and would buy it more expensive because of the added value that was added to it.
Influential Factors
Several factors will influence the balance of trade. Among them we can mention:
- The income level of the national economy: if the country is able to produce and deliver these products to the market.
- The income level of the world economy: if the world is going through a good economic moment, imports grow and so does the country that sells certain products.
- the exchange rate: when the national currency is worth more or equal to the foreign currency, imported products tend to be cheaper on the international market.
- Protectionism: the amount of fees a country places on certain products can make it more expensive to sell to a certain market.
Brazilian Trade Balance
The Brazilian trade balance remains in surplus, in other words: the country is exporting more products than importing. In 2017, Brazilian exports grew 18.5%.
The biggest buyers from Brazil are respectively: China, United States, Argentina and Germany.
If we consider the world market, in 2014, Brazil was responsible for 1.3% of global exports.
The main products exported by Brazil are:
| Product | Share in total exports |
|---|---|
| Crude Oil | 17,3% |
| Iron ore | 12,1% |
| Soybeans and derivatives | 9,4% |
| Machines | 7,4% |
| Meat | 6,0% |
In turn, Brazil imports from other countries:
| Product | Participation in total imports |
|---|---|
| Fuels | 18,5% |
| Industrial equipment | 14,9% |
| electronic equipment | 11,7% |
Brazil buys mainly from the same countries to which it sells: China, United States, Argentina and Germany. The country ranks 20th among the nations that matter most in the world.
Also read:
- Economy of Brazil
- Agribusiness
- Sectors of Economy
- GDP - Gross Domestic Product
- Characteristics of Mercantilism