The trade balance compares a country’s purchases from abroad with its sales abroad over the same period.
Go deeper
Exports are goods and services sold to buyers abroad; imports are purchases from abroad. Subtracting imports from exports gives the trade balance. A negative balance is a deficit, while a positive balance is a surplus. A goods-only balance can differ from a balance that also includes services.
GDP counts domestic production. Imports are subtracted in the expenditure calculation because imported products can already be included in consumer spending, investment or government purchases. That accounting step removes foreign production. It does not establish that every additional imported dollar independently reduces domestic output, or that a smaller deficit always signals a stronger economy.
Make it concrete
Hypothetical example: exports total $80 billion and imports total $100 billion. The balance is minus $20 billion, described as a $20 billion trade deficit. This is a flow during a period.
When you read a headline
Check goods versus goods-and-services coverage and the comparison period. Look at exports and imports separately to understand why the balance changed; the balance alone does not explain the cause.