Trade balance and its characteristics

Historically, foreign tradeis 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 tradein the balance of payments, which includes the trade balance, income and payments for services, income from foreign investment, non-commercial payments, foreign exchange reserves, the movement of short-term and long-term capital.

The trade balance is determined by the ratioexport and import 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 value of a deficit or assetthe 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 behind the leaders in terms of economic development, the active trade balance becomes a source of foreign exchange earnings to pay liabilities to other countries and other items in the balance of payments.

Some developed industrial countries usethe 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 the reductionexport as a result of a decrease in demand for goods and services of 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, then in this case the negative balance is not an occasion for a negative assessment of the economic state of the country.

Thus, the trade deficit or surplusbalance is evaluated only on the basis of analysis leading to this result circumstances. For example, the resulting positive balance in the trade balance of the Russian Federation is not the 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, one can speak of a low level of state production and of not the best state of the economy.

If the negative balance increases, then,the trade balance is deteriorating. This indicates that the country overseas spends more money than it receives, as a result, in the foreign exchange market, the supply of the national currency by the participants in trade increases, 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.

It is obvious that as a result of devaluation,the rate of its own currency stimulates the activity of exporters, and imports become less profitable. Thanks to this change in the exchange rate, prerequisites are created for increasing export operations and reducing imports. As a result, there is a decrease in the negative and the emergence of a positive trade balance.