Balance of Goods and Services

The balance of goods and services, also known as the trade balance, is part of the Current Account (CA) balance in a nation's Balance of Payments (BoP) statistics. This net measure of a country's position with respect to trade in goods and services is a widely cited statistic in the context of the current U.S. trade deficit and implications for its sustainability in future years.

A country's balance of trade in goods records the difference between exports and imports of merchandise and is therefore also referred to as the merchandise balance. As a category, merchandise (or goods) includes physical items such as cars, steel, food, furniture, clothes, appliances, etc. Merchandise exports record the transfer of ownership, between a country's residents and nonresidents, of all tangible goods (including nonmonetary gold). However, some goods are excluded in this category, such as merchandise purchased by a country's residents abroad and purchases of goods by diplomatic and military personnel. The latter are separately classified under travel transactions in the balance of services.

The standard practice in determining the value of merchandise exports is to include the value of the goods themselves, and the value of outside packaging, and related distributive services used up to and including loading the goods onto the carrier at the customs frontier of the exporting country. This is commonly known as the free on board (f.o.b.) value. The value of all exported goods appears as a credit in a country's CA since payments from foreigners are received in exchange for the exported merchandise. Similarly, imports of merchandise appear as a debit in the CA since they reflect exchanges of movable goods between residents and nonresidents (also valued f.o.b. at the customs frontier of the country that is exporting them). Thus, the merchandise balance is a net measure of merchandise trade which can be either positive (a surplus of exports receipts over import expenditures) or negative (a deficit showing import expenditures exceeding receipts from exports).

Similarly, the difference between exports and imports of services is known as the balance on services. Trade in services includes exports and imports of transportation services (such as shipment and passenger services), insurance services, travel services (such as hotel and restaurant services), legal services, consulting, etc. Other transactions in the services category include items not separately classified as merchandise, or non-factor services, or transfers. Examples include transactions with nonresidents by government agencies and their personnel abroad and transactions by private residents with foreign governments and government personnel stationed in the reporting country. The balance on trade in services is therefore also a net measure which can be either positive (a surplus of services exports over imports) or negative (a deficit indicating that services imports outweigh exports).

Taken together, the balance on merchandise (goods) and services trade comprise the balance of trade which is itself a net trade measure of a country's trade position. A trade deficit implies that a nation is importing more goods and services than it is exporting. A surplus would indicate that exports of goods and services outweigh imports.

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