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Wednesday, August 1, 2012

What is Balance of Trade (BOT)?

Balance of trade is the difference between exports and imports of a nation recorded over a certain period.
It is also termed as ‘Net Exports’.

BOT= Exports- Imports

When BOT is positive i.e. Exports exceeds imports, it is called Trade Surplus.
Trade Deficit arises when imports are higher than exports (negative BOT).

BOT is a constituent of  Current Account Deficit (CAD).

India’s BOT has been consistently rising especially after the year 2003-04 when GDP of the nation catapulted into higher territories. 

A country may have trade surplus or trade deficit with another country. For example USA has a trade deficit with PRC(China), this means China has a trade surplus with the USA.

A country may have a trade deficit with one country but may having a trade surplus with another country.
As we have seen that USA is at trade deficit with the China but it is having trade surpluses with countries like Australia, UAE and Hong Kong.

So if for a nation cumulative BOT with all other nations is negative we say that  country is having a Net Trade Deficit.
Similar in case of the Trade Surpluses.
So far, China was having the Net Trade Surplus with the rest of the world.


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