What does the balance of trade measure?

The balance of trade is a critical economic indicator that reflects the difference between the total value of goods a country exports and the total value of goods it imports over a given period. When a country exports more than it imports, it has a trade surplus, indicating that it is selling more goods to other countries than it is buying. Conversely, a trade deficit occurs when imports exceed exports. This measurement is vital for assessing a country's economic health, as it influences exchange rates, currency valuation, and overall economic stability.

The focus of the balance of trade specifically on goods highlights how international trade in physical products affects a country's economic situation, allowing policymakers and economists to gauge the effectiveness of trade policies and economic strategies. Other aspects, such as services or average prices, while important in their own right, do not directly define the balance of trade. Thus, the emphasis on the difference between exports and imports is what makes this understanding essential in international economics.