TRADE SURPLUS

1
TRADE SURPLUS

• Exports exceed Imports.
• X M gt 0
• Americans spend more on our goods than we spend
  on theirs. (If we have a surplus with them, they
  have a deficit with us.)
• Rising commodity prices, such as the rise in oil
  prices often create a trade surplus in Canada.

2
TRADE DEFICIT

• Imports exceed Exports
• X M lt 0
• Americans spend less on our goods than we spend
  on theirs. (If we have a deficit with them, they
  have a surplus with us.)
• We are more likely to have a trade deficit when
  commodity prices are low. Bad markets for
  transportation equipment also reduces our
  exports.

3
Lending during a Trade Surplus

• If exports are greater than imports, we lend to
  foreigners.
• Americans spend more on our goods than we spend
  on theirs. As a result they want to sell a larger
  value of US to buy CDN in order to buy Canadian
  goods and we want to sell a smaller value of CDN
  to buy US.
• If the Canadian trade surplus was 2 billion,
  then Americans want to sell 2 billion more US
  to buy CDN to buy Canadian goods than we want to
  sell to them to buy American goods
• When a trade surplus occurs, Americans want to
  sell more US to buy Cdn than Canadians want to
  buy in order to purchase American goods.
  Americans spend more on our goods than we spend
  on theirs.
• We invest the difference in their financial
  markets
• We cant use US in ours, and more US are
  available than Canadians want to buy US goods

4
Borrowing during a Trade Deficit

• If imports are greater than exports, we borrow
  from foreigners
• Americans spend less on our goods than we spend
  on theirs We need more US to buy US goods
  than we receive from selling Americans Canadian
  goods.
• When a trade surplus occurs, Americans want to
  sell more US to buy Cdn than Canadians want to
  buy in order to purchase American goods.
  Americans spend more on our goods than we spend
  on theirs.
• Americans invest the difference in our financial
  markets
• They cant use Cdn in theirs, and more Cdn are
  available than Americans want in order to buy Cdn
  goods

5
International Lending

• Decisions to lend to another nation may often
  cause a trade surplus.
• In the 1990s Canadians wanted to invest in US
  stock markets. They sold Canadian dollars to buy
  US dollars to buy US stocks.
• The Canadian dollar fell to .63
• A cheap dollar led to cheap exports and exports
  rose while imports fell

6
International Borrowing

• Decisions to borrow from another nation may often
  cause a trade deficit.
• One factor causing the Cdn to rise was the
  decline in the American stock market and the good
  performance of the Canadian market. People bought
  Cdn to buy Cdn stocks and drove the price up.
• A more expensive dollar has led to more expensive
  exports. Manufacturing exports were hurt by the
  rising dollar, so those exports fell.