An economy's foreign trade activity could result in a deficit or a surplus.
A country's balance of payments reflects its net earnings on trade in goods and services with other countries. A positive balance of payments situation, or a surplus, comes about when a country exports more than it imports. A deficit situation arises when a country imports more than it exports. Governments manage their balance of payments situations in accordance with their larger goals for the economy.
Increased Exports
One way of reducing a balance of payments deficit situation is to export more to other countries. For instance, in July 2010, the U.S. goods and services deficit went down to $42.8 billion, from $49.8 billion in June 2010. This came about as the country's exports rose to $153.3 billion in July, from $104.9 billion in June 2010. As the global recession abated, there was more demand for U.S. exports in other countries and this led to the rise in exports, according to the U.S. Census Bureau.
Decreased Imports
Another way of reducing a balance of payments deficit is to import less from other countries. In July 2010, U.S. imports decreased to $196.1 billion, from $200.3 billion in June 2010, according to the U.S. Census Bureau. A slow U.S. recovery from the recession of 2007 meant that U.S. consumers were consuming fewer goods, including imported goods. This too causes a country's balance of payments deficit to go down.
Government Policy
Another factor that impacts a country's balance of payments situation is trade policies relating to specific countries. If a country has a protectionist trade policy, it has various ways of making imports more expensive. For instance, a government could levy a tax or tariff on imported goods. This makes the goods more expensive to its citizens who might then opt to buy local goods over the more expensive imported goods. This tends to reduce a country's balance of payments deficit. Countries also have various mutual trade agreements with other countries, whereby they could give preferred treatment to each other's products for import purposes. Such government policies impact a country's balance of payments situation.
