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Definitions and Basics
The balance of payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. investment. The payments of Americans to Japan for automobiles are balanced by the payments of Japanese to U.S. individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New York office buildings....Imports, from AmosWEB's Economics Gloss*arama.
IMPORTS: Goods and services produced by the foreign sector and purchased by the domestic economy. In other words, imports are goods purchased from other countries. The United States, for example, buys a lot of the stuff produced within the boundaries of other countries, including bananas, coffee, cars, chocolate, computers, and, well, a lot of other products. Imports, together with exports, are the essence of foreign trade--goods and services that are traded among the citizens of different nations. Imports and exports are frequently combined into a single term, net exports (exports minus imports)....Exports, from AmosWEB's Economics Gloss*arama.
EXPORTS: The sale of goods to a foreign country. The United States, for example, sells a lot of the stuff produced within our boundaries to other countries, including wheat, beef, cars, furniture, and, well, almost every variety of product you care to name. In general, domestic producers (and their workers) are elated with the prospect of selling their goods to foreign countries--leading to more buyers, a higher price, and more profit. The higher price, however, is bad for domestic consumers. In that domestic consumers tend to have far less political clout than producers, very few criticisms of exports can be heard....Balance of Trade, from AmosWEB's Economics Gloss*arama.
BALANCE OF TRADE: The difference between the value of goods and services exported out of a country and the value of goods and services imported into the country. The balance of trade is the official term for net exports that makes up the balance of payments. The balance of trade can be a "favorable" surplus (exports exceed imports) or an "unfavorable" deficit (imports exceed exports). The official balance of trade is separated into the balance of merchandise trade for tangible goods and the balance of services....
In the News and Examples
A Little History: Primary Sources and References
Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith coined the term "mercantile system" to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports. This system dominated western European economic thought and policies from the sixteenth to the late eighteenth century. The goal of these policies was, supposedly, to achieve a "favorable" balance of trade that would bring gold and silver into the country. In contrast to the agricultural system of the physiocrats, or the laissez-faire of the nineteenth and early twentieth centuries, the mercantile system served the interests of merchants and producers such as the British East India Company, whose activities were protected or encouraged by the state....Exports and Imports, from Lalor's Cyclopedia of Political Science
By imports is meant all the merchandise brought into a country from other countries; by exports, all the merchandise which leaves a country for other countries....Balance of Trade, from Lalor's Cyclopedia of Political Science
Balance of Trade, in commerce, the term commonly used to express the difference between the value of the exports from, and imports into a country: the balance used to be said to be favorable when the value of the exports exceeded that of the imports, and unfavorable when the value of the imports exceeded that of the exports. And in many countries this was long believed to be the case, and to a late period they were annually congratulated by their finance ministers on the excess of exports over the imports....Mercantile System, from Lalor's Cyclopedia of Political Science
The theory of the balance of trade and the consequences which were drawn therefrom constitute what is called the mercantile system, because the whole of this system tends to consider foreign commerce as the most productive branch of a nation's labor. It is supposed that a nation can sell more than it buys, in a way to ruin neighboring nations by absorbing their precious metals by the greatest possible exportation and the least possible importation. This false theory still prevails in the minds of the masses, and still serves as a rule for many administrations and governments; it forms the basis of the economic ideas of all the writers of the eighteenth century, who did not belong to the physiocratic school or to that of Adam Smith; it is still appealed to in our days by statesmen, and by all those who, by conviction or for financial considerations, defend prohibition, high tariffs and custom impediments....
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