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balance of trade
Balance of Trade
the difference between the value of a country’s exports and imports during a given period, usually a year. The balance of trade includes the value of commodities purchased and sold for cash, as well as on credit; it also reflects the value of goods furnished without compensation as foreign aid. With a deduction made for goods in the last category, the balance of trade is incorporated into the balance of payments.
The export side of the balance of trade reflects the export of goods produced, grown, or extracted within a given country, as well as of goods previously imported and subjected to processing. The import side comprises goods that are imported either for domestic consumption or for processing and subsequent export. The difference between the two sides constitutes the balance, which is said to be favorable if the value of exports exceeds that of imports and unfavorable if the opposite holds. If neither side is greater, exports and imports are said to be in balance.
A country’s balance of trade is compiled by its statistical, financial, and foreign trade organs and is used to evaluate the international economic position of the country, the level of competitiveness of its domestically produced commodities, and the purchasing power of its currency. Since the methods used in computing the values of exports and imports vary from country to country, comparisons of statistics are not always possible. The Statistical Office of the United Nations has recommended that countries adhere to the same method in computing indicators for international trade. In particular, in compiling the balance of trade, the office recommends that the value of imported goods be measured on a CIF basis and that of exported goods be taken on an FOB basis. Thus, the value of an imported commodity would include its cost either at the border or in a port of the country of exportation; it would also reflect the outlays for freight and insurance necessary to bring the commodity to the border of the importing country. The value of an exported commodity would include, aside from its cost at the factory, all expenses incurred in bringing the commodity to either a port of exportation or to the border of the producer’s country and all export taxes and similar levies. Most countries follow the recommendations of the Statistical Office. Approximately 30 countries, among them the socialist countries, compute the value of both imports and exports on an FOB basis.
The trade balances of capitalist countries reflect the spontaneous, anarchic nature of the capitalist economy’s development; they are also affected by inflation, the monetary crisis, and the intensified struggle for markets. The unevenness of capitalism’s economic and political development is manifested in the changing power relationships between the competitors, the outbreak of trade wars, and the economic and customs groupings of the imperialist states. Capitalist countries seek to bring their exports and imports into balance through the use of customs duties, import quotas, tax incentives, favorable credit terms, government subsidy of exports, devaluation, revaluation, and floating exchange rates.
In the early 1970’s, the trade balances of many developed capitalist countries were chronically unfavorable. Thus, during the period 1970–74 the US trade deficit totaled $7.4 billion; that of Great Britain was £13.2 billion, and the deficit of France totaled 47.3 billion francs. In 1974 all the imperialist countries except Canada and the Federal Republic of Germany had high trade deficits, mainly because of the high prices set by the oil cartels on petroleum and petroleum products.
The trade balances of the socialist countries reflect the planned, orderly development of the economy, especially of foreign trade; they also reflect the deepening international (socialist) division of labor and the development of a world socialist market. As a rule, the trade balances of the socialist countries are favorable, although for certain years and certain countries they have shown deficits. For example, during the first five-year plan (1929–32) the USSR’s trade balance was unfavorable because of the necessity to import machinery and equipment on a large scale in order to create a strong industrial base for the country. In subsequent years, a steady excess in the value of exports over imports was ensured in the USSR.
Trade relations between the socialist countries are based on equality, mutual advantage, and a commitment to cooperation and socialist economic integration. This basis ensures that the exports and imports of each country will be in balance, a balance necessary to the economic development of each country and of the entire socialist community.
V. B. PANICH