Balance of Trade is a term that refers to a country's imports minus its exports. Sometimes referred to as "net exports," its symbol is NX. Balance of trade is part of the current account, which also includes net factor incomes (including interest and dividends) and net transfer payments, such as foreign aid.

Balance of trade during any given period of time is defined by whether a positive or negative number is reached during that period. A trade surplus occurs when more is exported than imported; when the opposite happens, it is known as a trade deficit (or "trade gap"). The balance of trade can also be divided into a goods and services balance. Currently, the United States has been posting a trade deficit since the 1970s.

Balance of trade is important as part of the current account in that when the current account is in surplus, a country's net international asset position is increased. Naturally, during a trade deficit, the country's net international asset position is lowered. Balance of trade results depend upon a variety of factors, for which data is collected in order to ascertain what the current balance is. These factors include current exchange rates, prices of domestically manufactured goods, trade agreements and the current business cycle.

In the U.S., the trade deficit, ongoing since the 1970s, became more serious beginning in 1997. The deficit peaked at $763.6 billion in 2006, a sharp increase over the previous year's tally of $716.7 billion. Throughout this time, the trade deficit slackened during recessionary periods and increased during times of expansion.

Because the business cycle itself--for example, export- or domestic-demand growth--affects the balance of trade, economists differ on their opinions of what the consequences of a trade deficit will be, and how to treat it long-term. Nobel Prize-winning economist and Monetarism expert Milton Friedman (July 31, 1912-Nov. 16, 2006) put forth the opinion that trade deficit fears may be attempts to push macroeconomic policies more toward the exporting industries. Since the currency always returns to the country of origin in one way or another, even if only through a long and circuitious route, trade deficit should not be a scare word, according to Friedman's argument.

Critics to this viewpoint have commented that this is equivalent to saying it doesn't matter if one gets into debt, as eventually he will have to pay the money back anyway. This point has been debated by modern economists and continues to be a talked-about issue in the world of economics.

There have also been criticisms as to how the balance of trade is actually tallied in any given country, including the U.S.; a viewpoint that has some backup. For example, added together, the world's countries' official data shows exports as exceeing imports by several percent, giving the appearance that the world is running a trade surplus with itself--an impossiblity, as financial experts point out.