balance of trade, relation between the merchandise exports and imports of a country. The concept first became important in the 16th and 17th cent. with the growth of mercantilism. Mercantilist theorists believed that a country should have an excess of exports over imports (i.e., a favorable balance of trade) to bring money, which they confused with wealth, into the country. They urged legislation to restrict the use of foreign goods, encourage exports, and forbid the export of bullion. The importance of a favorable balance of trade remained unchallenged until David Hume, Adam Smith, David Ricardo, and John Stuart Mill concerned themselves with theories on the adjustment of balance of trade. The classical theory of the mechanism is that a country whose exports fall short of its imports must export part of its stock of gold, thereby affecting its price structure and its ability to compete on the world market. Today the balance of trade is regarded as only one of several elements that make up the balance of payments of a nation; the U.S. Dept. of Commerce issues reports on the current status of the balance of trade in goods and services on a monthly basis. Since the 1980s the value of U.S. imports has greatly exceeded exports, resulting in large trade deficits that complicated U.S. relations with its trading partners, particularly Japan, China, and the United States' partners in the North American Free Trade Agreement, Canada and Mexico.

Difference in value over a period of time between a nation's imports and exports of goods and services. The balance of trade is part of a larger economic unit, the balance of payments, which includes all economic transactions between residents of one country and those of other countries. If a nation's exports exceed its imports, the nation has a favourable balance of trade, or a trade surplus. If imports exceed exports, an unfavourable balance of trade, or a trade deficit, exists. Under mercantilism a favourable balance of trade was an absolute necessity, but in classical economics it was more important for a nation to utilize its economic resources fully than to build a trade surplus. The idea of the undesirability of trade deficits persisted, however, and arguments against deficits are often advanced by advocates of protectionism.

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