Why are trade surpluses considered good? (1 Viewer)

[irenefu]

Could someone please explain "Maintaining a trade surplus is important for Brazil's external stability, as it has a high level of debt which means it is vulnerable to any loss of confidence in Brazil from global financial markets.
thankyou

 

[PhysicsGirl]

A trade surplus is when a country's export revenue (the money they get when they export their G&S) or credits, is greater than their debits (the imports they purchase that arrive in their country).

Therefore, when a country is experiencing huge trade and current account surpluses, they can use that revenue to pay off their overseas debt, which contributes to acheiving external stability. Remember, the more money a country has, the better off it is as it can purchase more imports, borrow with ease from other countries as they have the money to pay them back, so the more G&S a country can export, the more ecenomic growth they experience. There's also an improvement in the TOT.

 

[MaxRigby]

ignoring the other elements of the Current Account Balance for the moment, the balance on goods and services could almost be a measure of whether an economy is 'living within its means' with regards to the rest of the world. If economics is based off the twin processes of production and consumption, an economy should be able to produce as much as it consumes in the long run. An import is consuming something that is not produced domestically. An export is producing something that is not consumed domestically. If you have trade deficits, you're essentially consuming more of foreign goods and services than you're producing for foreign markets. The difference needs to essentially be purchased using borrowed money from overseas, which leads to an accumulation of Net Foreign Debt.

Having high levels of debt increases your exposure to external shocks. Should foreign investors lose confidence in Brazilians to pay back their debt, they might call upon debts or sell equity or reduce loans to brazilian firms/consumers. Having a reduced inflow of foreign capital can lead to economic down turns as firms can't borrow to fund their operations and experience cash flow issues/consumers have to pay back debts rather than consume.

I feel a bit dodgy on the second point but I hope that makes sense.