What is a balance of trade and why is it important?

The balance of trade refers to the difference between a country’s exports and imports of goods and services. If a country exports more than it imports, it has a trade surplus; if it imports more than it exports, it has a trade deficit. The balance of trade is important because it affects a country’s currency value, its overall economic health, and its relationships with trading partners. A persistent trade deficit may indicate economic imbalances, while a surplus can signal a competitive economy. The balance of trade also impacts government policy, as countries with significant deficits may need to implement trade restrictions or currency devaluation.