TRADE SURPLUS
Exports exceed Imports.
X–M>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.
TRADE DEFICIT
Imports exceed Exports
X–M<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.
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 can’t use US$ in ours, and more US$ are available than
Canadians want to buy US goods
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 can’t use Cdn$ in theirs, and more Cdn$ are available
than Americans want in order to buy Cdn goods
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 $.63
• A cheap dollar led to cheap exports and
exports rose while imports fell
International Borrowing
• Decisions to borrow from another nation may
often cause a trade deficit.
• One factor causing the Cdn$ 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.