Trade Imbalances

Definition

Trade imbalances occur when there is an unequal flow of goods and services between two countries. It means that one country imports significantly more than it exports (trade deficit) or exports significantly more than it imports (trade surplus).

Related terms

Balance of Payments: The balance of payments is a record of all economic transactions between one country and the rest of the world over a specific period. It includes both visible trade (goods) and invisible trade (services).

Current Account Deficit/Surplus: The current account measures the balance of trade in goods and services plus net income from abroad. A deficit occurs when a country imports more than it exports, while a surplus occurs when a country exports more than it imports.

Protectionism: Protectionism refers to government policies that restrict or regulate international trade in order to protect domestic industries from foreign competition. It can contribute to trade imbalances.