Understanding Trade Deficits and Surpluses

Canada and other countries are constantly negotiating and renegotiating trade deals to gain economic advantage in the global economy. A basic understanding of some of the terminology surrounding trade can benefit our understanding of some of the trade deals in the news today. 

What Is Balance Of Trade?

We often hear of the term trade deficit, also referred to as negative balance of trade (BOT), it is an economic measure of international trade where a country’s imports exceed its exports. When this occurs there is an outflow of domestic currency to foreign markets. Imports include both goods and services. 

Trade Deficits And Surpluses

A trade deficit can occur when the domestic market fails to produce the goods in demand by its residents. An influence on a trade deficit or surplus can include currency exchanges, the availability of the product especially raw materials and bilateral and unilateral taxes. 

Listed below are the top 20 countries with the largest Trade surpluses and Trade Deficits in 2017 (from the CIA World Factbook).

“This is a list of the 20 countries and territories with the largest surplus in current account balance (CAB), based on data from 2017 est. as listed in the CIA World Factbook.”

“This is a list of the 20 countries and territories with the largest deficit in current account balance (CAB), based on data from 2017 est. as listed in the CIA World Factbook.”

A country with a large trade deficit borrows money to pay for its goods and services, while a country with a large trade surplus lends money to countries with deficits. 

Economists arrive at a trade deficit or surplus for a specific country over a period of a month, a quarter or a year by subtracting credits from debits. A debit includes imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.

Some countries are dependent on imports and as such are almost certain to have a trade deficit. As an example the US has had a trade deficit since 1976 because of its dependency on oil imports and consumer products. China is a country that produces and exports many of the worlds’ consumables and therefore has recorded a trade surplus since 1995.

US And Canada’s Balance Of Trade

The US has a $12.5 billion trade surplus with Canada, its second largest trading partner. The US has a $55 billion trade deficit with Mexico and $385 billion deficit with China, its largest trading partner. The US has a $92 million trade deficit with European nations.

For 38 years up until 2009, Canada has recorded a trade surplus. Since 2009 Canada’s trade balance has been in the deficit (with the exception of 2011 and 2014). Canada’s largest trade deficits are with China, Germany and Mexico and the largest surpluses are with the US, the UK and Norway. 

Exporting Your Goods And Services

To improve the Balance of Trade in Canada and the US, domestic companies can export their goods and services to Countries where there is an unequal balance. In Canada, exporting to China, Germany and Mexico will help even out the balance. In the US, exporting goods and services to China and Mexico will help.

Do you need help exporting from Canada?


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About Author
Jan Brock

Jan Brock joined Pacific Customs Brokers in 2015 as a Senior Trade Advisor. She retired from Canada Border Services Agency (CBSA) in 2015 after serving more than 37 years. Jan started her career with CBSA as a summer student in 1976 and worked part-time until she graduated from U.B.C. with a Bachelor of Education Degree in 1980 . Shortly after graduating from U.B.C. Jan worked full time as an inspector with CBSA and within three years was promoted to Superintendent. She served some time in the Regional Operations office as an Operations Review Officer before she was promoted to Chief of Operations first at the Customs Mail Centre, then in the Metro District as the Commercial Chief and ending her career as a Chief at Pacific Highway Commercial Operations where she served as Chief from 1992 to 2015. During her career she was a member of the Customs Drug Team and a trainer in the National Enforcement Program. Jan also served as the Regional Coordinator Officer Powers and Use of Force for the Pacific Region. Jan served on many Commercial Program Reviews and committees both national and regional during her career and possesses an expansive knowledge of importing and exporting into and from Canada.

While we strive for accuracy in all our communications, as the Importer of Record it is incumbent upon your company to ensure that you are aware of the requirements under the new regulations so that you maintain compliance as always.
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