Net Trade (X-M) - 5

What is the net trade balance ?

• The net trade balance is the difference between the value of exports and imports (X-M)

What is the net trade balance influenced by ?

• The net trade balance is influenced by changes to real income, exchange rates, state of the world economy, and the degree of protectionism (Government policies that restrict international trade in order to protect domestic industries e.g import tariffs)

A Table Showing How Changes to Each of the Influencing Factors Effects Exports and Imports

A Table Showing How Changes to Each of the Influencing Factors Effects Exports and Imports

Change in Condition	Effect on Exports	Effect on Imports	(X-M)
UK real income increases	Little effect	Consumers purchase more	Trade balance weakens
Real income increases abroad	Customers overseas purchase moreUK products; exports increase	Little effect	Trade balance strengthens
UK £ appreciates	Exports more expensive for customers overseas; exports decrease	UK consumers' money goes further abroad; imports increase	Trade balance weakens
UK £ depreciates	Exports less expensive for customers overseas; exports increase	UK consumers' money is worth less abroad; imports decrease	Trade balance strengthens
World economy booms	Increased demand for UK exports	Little effect	Trade balance strengthens
World economy slows	Decreased demand for UK exports	Little effect	Trade balance weakens
Protectionism increases	Depends on retaliation measures from other countries	Decreased demand for imports as they are more expensive	Trade balance strengthens
Protectionism decreases	Likely to increase	Increased demand for imports as they are less expensive	Trade balance weakens

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