key term - Balance of Trades

Definition

The balance of trades refers to the difference in value between a country's exports and imports over a specific period. It plays a crucial role in determining a nation's economic health, influencing currency values, trade policies, and relationships with other countries, particularly during the Age of Exploration when European powers competed for dominance in global trade routes and resources.

5 Must Know Facts For Your Next Test

1. During the Age of Exploration, European nations aimed for a favorable balance of trade to strengthen their economies and accumulate wealth.
2. Countries like Spain, Portugal, England, and France established colonies to secure resources and increase their exports while limiting imports.
3. Mercantilist policies were implemented to control trade and ensure that colonies provided raw materials that would be sent back to Europe for processing.
4. The balance of trades affected international relations, leading to conflicts over trade routes and colonies as nations sought to expand their economic influence.
5. Negative balances of trade could lead to financial crises, prompting governments to adopt protective tariffs or subsidies to support domestic industries.

Review Questions

• How did the concept of balance of trades influence European nations' colonial policies during the Age of Exploration?
  • The concept of balance of trades significantly influenced European colonial policies by motivating nations to establish colonies rich in resources. By ensuring that exports exceeded imports, countries like Spain and England sought to create a favorable economic environment that would lead to increased national wealth. This led to aggressive competition among European powers to control trade routes and resources in newly discovered territories, impacting their relationships with both native populations and each other.
• Analyze how mercantilism shaped the practices related to the balance of trades in the context of the Age of Exploration.
  • Mercantilism shaped trade practices by promoting policies that ensured a favorable balance of trades for European nations. Under this economic theory, governments encouraged exports while discouraging imports through tariffs and restrictions. This resulted in a system where colonies were essential for providing raw materials for export while being reliant on imported manufactured goods from the mother country. Such practices solidified the economic dominance of European powers during this period.
• Evaluate the long-term consequences of imbalanced trade relationships established during the Age of Exploration on contemporary global trade systems.
  • The imbalanced trade relationships formed during the Age of Exploration have had lasting effects on modern global trade systems. These early interactions set a precedent for unequal exchanges between developed and developing nations, often leaving former colonies economically disadvantaged. Additionally, the legacy of mercantilist policies has influenced current trade agreements and practices, which continue to reflect power dynamics established centuries ago. As a result, contemporary discussions about fair trade and economic equity often stem from these historical imbalances.

Related terms

Mercantilism:

An economic theory that emphasizes the importance of accumulating wealth through a positive balance of trade, where exports exceed imports, often practiced by European nations during the Age of Exploration.

Colonial Trade: Trade networks established between European powers and their colonies, often involving the exchange of raw materials from colonies for manufactured goods from Europe.

Trade Routes: Established paths used for trading goods, which expanded significantly during the Age of Exploration as European nations sought new markets and resources across the globe.