What Is a Trade Surplus?
A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. A trade surplus occurs when the result of the following calculation is positive: TradeBalance=TotalValueofExports−TotalValueofImports
A trade surplus represents a net inflow of domestic currency from foreign markets. It is the opposite of a trade deficit, which represents a net outflow and occurs when the result of the above calculation is negative. In the United States, trade balances are reported monthly by the Bureau of Economic Analysis (BEA).
Key Takeaways
- A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports.
- It is the opposite of a trade deficit.
- A trade surplus can create employment and economic growth, but may also lead to higher prices and interest rates within an economy as well as a more expensive currency.
- In the United States, trade balances are reported monthly by the Bureau of Economic Analysis.
Understanding Trade Surplus
A trade surplus can create employment and economic growth, but may also lead to higher prices and interest rates within an economy. A country’s trade balance can also influence the value of its currency in the global markets, as it allows a country to have control of the majority of its currency through trade.
In many cases, a trade surplus helps to strengthen a country’s currency relative to other currencies, affecting currency exchange rates; however, this is dependent on the proportion of goods and services of a country in comparison to other countries, as well as other market factors.
When focusing solely on trade effects, a trade surplus means there is high demand for a country’s goods in the global market, which pushes the price of those goods higher and leads to a direct strengthening of the domestic currency.
A trade surplus implies there is high demand from overseas for a country's goods and services, which tends to push their prices up and contribute to a strengthening of the domestic currency.
Trade Surplus vs. Trade Deficit
The opposite of a trade surplus is a trade deficit. A trade deficit occurs when a country imports more than it exports.
A trade deficit typically also has the opposite effect on currency exchange rates. When imports exceed exports, a country’s currency demand in terms of international trade is lower. Lower demand for currency makes it less valuable in the international markets.
Special Considerations
While in most cases trade balances highly affect currency fluctuations, there are a few factors countries can manage that make trade balances less influential. Countries can manage a portfolio of investments in foreign accounts to control the volatility and movement of the currency. Additionally, countries can also agree on a pegged currency rate that keeps the exchange rate of their currency constant at a fixed rate.
If a currency is not pegged to another currency, its exchange rate is considered floating. Floating exchange rates are highly volatile and subject to daily trading whims within the currency market, which is one of the global financial market’s largest trading arenas.
Is a Trade Surplus Good or Bad?
Generally, selling more than buying is considered a good thing. A trade surplus means the things the country produces are in high demand, which should create lots of jobs and fuel economic growth. However, that doesn't mean the countries with trade deficits are necessarily in a mess. Each economy operates differently and those that historically import more, such as the U.S., often do so for a good reason. Take a look at the countries with the highest trade surpluses and deficits, and you'll soon discover that the world's strongest economies appear across both lists.
Which Countries Have a Trade Surplus?
In 2021, the countries with the highest trade surplus were: China, Germany, Ireland, Russian Federation, and Singapore.
What Increases a Trade Surplus?
A trade surplus rises when a country increasingly sells more to other countries than it buys from other countries. This isn’t always sustainable as growing demand tends to push the value of the currency up, making it more expensive for foreign clients to keep buying.
The Bottom Line
Trade surpluses are generally more popular than trade deficits. Protecting domestic industry has become a big theme of late among politicians and led, in some cases, to a series of trade wars and tariffs.
Global tensions and a rise in nationalism have painted a picture of importers being losers. However, that’s not necessarily the case, especially when everyone is on good terms. Trade between countries and importing things when it makes sense financially can be seen as a positive. In fact, some of the strongest economies in the world are running a trade deficit, implying that trade is not a zero-sum game and that importing more than you export isn’t necessarily bad.
FAQs
It is found by subtracting a country's imports from its exports. If the resulting number is positive, the country has a trade surplus and is exporting more goods and services than it is importing. If the number is negative, the country has a trade deficit and is importing more than it is exporting.
How to calculate trade surplus? ›
A country's trade deficit or surplus is calculated by subtracting its imports from its exports.
What is the trade surplus? ›
A numerically positive balance of trade, also known as a trade surplus, occurs when a country exports more goods than it imports. This means that the country is earning more from its exports than it is spending on its imports, and it is generally seen as a sign of economic strength.
What countries are in a trade surplus? ›
Net Trade Surplus in US$ (Thousands): 33,433674.20
China, Italy, Russia, and the Netherlands are some of the top destinations for these exports. Interestingly, Kazakhstan imports most of its cars and related vehicles (planes and helicopters included) from Russia, China, and Germany.
What is a trade surplus Quizlet? ›
The trade surplus is: The amount by which exports exceed imports.
How do you calculate surplus account? ›
The surplus shows a growth in the net assets of the country (Net assets = Assets-Liabilities). If the current account balance is positive, it shows a current account surplus.
What is the formula for calculating trade? ›
P/L Calculation for trades that are closed
In order to calculate the loss or profit for trades that are CLOSED, follow the below formula: BUY Trade: (Close rate – Open rate) * Nominal Value = P/L. SELL Trade: (Open rate – Close rate) * Nominal Value = P/L.
What is a surplus country? ›
: a situation in which a country sells more to other countries than it buys from other countries : the amount of money by which a country's exports are greater than its imports. The country's trade surplus increased last year. a trade surplus of almost $10 billion.
What is a trade surplus and why is it good? ›
A trade surplus is an economic state in which a particular country exports more goods than it imports. As a result, it also brings in more currency than it sends out. This can also be referred to as a positive balance of trade.
Are we in a trade surplus? ›
The United States recorded a trade deficit of 68.90 USD Billion in February of 2024. Balance of Trade in the United States averaged -17.88 USD Billion from 1950 until 2024, reaching an all time high of 1.95 USD Billion in June of 1975 and a record low of -102.54 USD Billion in March of 2022.
If a country exports a greater value than it imports, it has a trade surplus or positive trade balance, and conversely, if a country imports a greater value than it exports, it has a trade deficit or negative trade balance. As of 2016, about 60 out of 200 countries have a trade surplus.
When would a country make a surplus on trade? ›
The trade balance is the difference between the value of exports of goods and services and the value of imports of goods and services. A trade deficit means that the country is importing more goods and services than it is exporting; a trade surplus means the opposite.
How does a country have a balance of trade and or a trade surplus? ›
If the exports of a country exceed its imports, the country is said to have a favourable balance of trade, or a trade surplus. Conversely, if the imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists.
Is a trade surplus always a good thing? ›
Trade surpluses are no guarantee of economic health, and trade deficits are no guarantee of economic weakness. Either trade deficits or trade surpluses can work out well or poorly, depending on whether a government wisely invests the corresponding flows of financial capital.
What are the things required in order to live? ›
Our families and our pets need some things like food, water, a place to live, and a place to sleep in order to stay alive.
How to calculate surplus or deficit? ›
How to Calculate a Budget Surplus. On the most basic level, calculating a budget surplus is as simple as taking total revenue and subtracting all of the expenditures from a budget. The remaining balance is known as the budget surplus, assuming the number is a positive integer.
How do you determine trade surplus or deficit? ›
A trade deficit occurs when a country imports more goods than they export. A trade surplus occurs when a country exports more goods than they import. Net exports are calculated by subtracting exports and imports.
How do you calculate the trade deficit? ›
The trade deficit equals the value of goods imported minus the value of goods exported. If a country exports more goods and services than it imports, it has a trade surplus.
How do you calculate total surplus deficit? ›
Budget Balance Calculation: To find the budget balance, subtract total expenditures from total revenue. If revenue exceeds expenditures, the result is a budget surplus. If expenditures exceed revenue, it results in a budget deficit.
