Before the trade surplus and deficit, we should understand what Balance of Trade (BOT) is. BOT of a country is the difference between the value of total imports and total exports of a given period. BOT is a determining factor of how strong or weak an economy is.
What are the trade surplus and deficit?
Every economy in the world is involved in some form of import and export. The country that is capable of producing goods and services for its people by itself has low imports and usually high exports which, as a result, is said to have a trade surplus.
The trade surplus is when a country’s value of export is greater than the value of its imports. Based on the size of the economy, leading the list of country that enjoys maximum trade surplus is Germany, Japan, China and the Netherlands.
Likewise, a relatively poor country which is not able to produce the required goods and services for its people have to import from other countries, usually resulting in a trade deficit.
The trade deficit is when a country’s value of export is less than the value of its import. USA, UK, India and Turkey are having the maximum trade deficit based the size of the economy.
It’s not necessary that the richest countries always should have a trade surplus. An obvious example is the US which has been incurring trade deficit since 1976 primarily because of its dependency on oil imports. While China that produces almost all of the consumer products have been on the surplus side since 1995.
For example, India’s Balance of Trade reads to be USD 15.3 billion deficit in April 2019, while it read a lower deficit of USD 10.9 billion in the previous month which means they have been importing more than exporting.