balance of trade, relation between the merchandise exports and imports of a country. The concept first became important in the 16th and 17th cent. with the growth of mercantilism mercantilism (mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent.
..... Click the link for more information. . Mercantilist theorists believed that a country should have an excess of exports over imports (i.e., a favorable balance of trade) to bring money, which they confused with wealth, into the country. They urged legislation to restrict the use of foreign goods, encourage exports, and forbid the export of bullion. The importance of a favorable balance of trade remained unchallenged until David Hume Hume, David (hy

m), 1711–76, Scottish philosopher and historian.
..... Click the link for more information. , Adam Smith Smith, Adam, 1723–90, Scottish economist, educated at Glasgow and Oxford. He became professor of moral philosophy at the Univ. of Glasgow in 1752, and while teaching there wrote his Theory of Moral Sentiments
..... Click the link for more information. , David Ricardo Ricardo, David, 1772–1823, British economist, of Dutch-Jewish parentage. At the age of 20 he entered business as a stockbroker and was so skillful in the management of his affairs that within five years he had amassed a huge fortune.
..... Click the link for more information. , and John Stuart Mill Mill, John Stuart, 1806–73, British philosopher and economist. A precocious child, he was educated privately by his father, James Mill. In 1823, abandoning the study of law, he became a clerk in the East India company, where he rose to become head of the
..... Click the link for more information. concerned themselves with theories on the adjustment of balance of trade. The classical theory of the mechanism is that a country whose exports fall short of its imports must export part of its stock of gold, thereby affecting its price structure and its ability to compete on the world market. Today the balance of trade is regarded as only one of several elements that make up the balance of payments balance of payments, balance between all payments out of a country within a given period and all payments into the country, an outgrowth of the mercantilist theory of balance of trade .
..... Click the link for more information. of a nation; the U.S. Dept. of Commerce issues reports on the current status of the balance of trade in goods and services on a monthly basis. Since the 1980s the value of U.S. imports has greatly exceeded exports, resulting in large trade deficits that complicated U.S. relations with its trading partners, particularly Japan, China, and the United States' partners in the North American Free Trade Agreement North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.
..... Click the link for more information. , Canada and Mexico.

balance of trade

Difference in value over a period of time between a nation's imports and exports of goods and services. The balance of trade is part of a larger economic unit, the balance of payments, which includes all economic transactions between residents of one country and those of other countries. If a nation's exports exceed its imports, the nation has a favourable balance of trade, or a trade surplus. If imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. Under mercantilism a favourable balance of trade was an absolute necessity, but in classical economics it was more important for a nation to utilize its economic resources fully than to build a trade surplus. The idea of the undesirability of trade deficits persisted, however, and arguments against deficits are often advanced by advocates of protectionism.