Components of the current account of the balance of payments: trade in goods

International trade and globalisation – Current account of the balance of payments

Components of the current account: Trade in goods

Think of a country’s trade in goods as a giant shopping spree across the world.

- Exports are the goods the country sells abroad – like selling your handmade bracelets to friends in another city.

- Imports are the goods the country buys from abroad – like buying a cool gadget from overseas.

The difference between what you sell and what you buy is called the trade balance.

CountryExports (£bn)Imports (£bn)Trade Balance (£bn)
UK200250-50
Germany300280+20

How to calculate the trade balance

  1. Write down the total exports for the period.

  2. Write down the total imports for the same period.

  3. Subtract imports from exports: Trade Balance = Exports - Imports.

  4. If the result is positive, the country has a trade surplus; if negative, a trade deficit.

Example:

Let’s say the UK exported £200 bn and imported £250 bn.

\$Trade\ Balance = 200 - 250 = -50\text{ bn}\$

The negative sign shows a trade deficit of £50 bn.

Exam Tip 💡

When you’re given data for exports and imports, remember to:

  • Always subtract imports from exports.

  • Check the sign: a negative trade balance is a deficit, a positive one is a surplus.

  • Use the symbol “\$-\$” for deficits and “\$+\$” for surpluses in your answer.

This quick checklist helps you avoid common mistakes and score full marks.