Trade Surplus

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DEFINITION of 'Trade Surplus'

An economic measure of a positive balance of trade, where a country's exports exceeds its imports. A trade surplus represents a net inflow of domestic currency from foreign markets, and is the opposite of a trade deficit, which would represent a net outflow.

BREAKING DOWN 'Trade Surplus'

When a nation has a trade surplus, it has control over the majority of its own currency. This causes a reduction of risk for another nation selling this currency, which causes a drop in its value. When the currency loses value, it makes it more expensive to purchase imports, causing an even a greater imbalance.

Because a trade surplus usually creates a situation where the surplus only grows (due to the rise in the value of the nations currency making imports cheaper), there are many arguments against Milton Friedman's belief that trade imbalances will correct themselves naturally.

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