Balanced Trade

Updated Jan 8, 2023

Definition of Balanced Trade

Balanced trade is defined as a situation in which a country’s exports and imports are equal. That means the value of goods and services a country exports is equal to the value of goods and services it imports.

Example

To illustrate this, let’s look at an imaginary country called Freedonia. In 2019, Freedonia exported USD 10 billion worth of goods and services and imported USD 10 billion worth of goods and services. As a result, Freedonia had a balanced trade balance for that year.

Why Balanced Trade Matters

Balanced trade is an important concept for understanding the global economy. On the one hand, it helps countries to maintain a healthy balance of payments. That means countries can avoid running up large deficits or surpluses, which can lead to economic instability. On the other hand, it also helps countries to maintain a healthy level of competition in the global market. That means countries can avoid becoming too dependent on one another, which can lead to a lack of competition and higher prices.