Explain Trade Surplus
Do "surplus countries" rip us off?
Definition
What is a trade surplus?
To begin this discussion, let's define "trade surplus" from the same source that I used for the definition of a trade deficit.
A trade surplus represents a net inflow of domestic currency from foreign markets. It is the opposite of a trade deficit, which represents a net outflow and occurs when the result of the above calculation is negative. In the United States, trade balances are reported monthly by the Bureau of Economic Analysis (BEA).1
Clipped from [What Is Trade Surplus? How to Calculate and Countries With It](https://www.investopedia.com/terms/t/trade-surplus.asp) at 2025-07-17.
Introduction
In my last post, I discussed the nature of exchange, the fact that we do not have a monolithic economy, the measures of trade, the willingness of sellers to accept dollars, and some of the self-inflicted damage caused by US government policies and practices. I resist the temptation to discuss trade surpluses by simply reprinting that article in reverse. I realize, however, that the letters and words would appear backwards and could prove a little difficult to read. So, I will address trade surpluses from a somewhat different perspective.
Since trade surpluses don't seem to cause great concern in this country, I will try to explain surpluses from the perspective of countries that have surpluses (I will refer to countries that have surpluses as "surplus countries" and countries that have trade deficits as "deficit countries.”)
Comparative Advantage
When a foreign country runs a trade deficit, it simply means it has some sort of comparative advantage in producing some goods and services. Normally, this does not indicate any malicious intent. It simply means that buyers in deficit countries find certain goods and services preferable when they come from a surplus country.
Dumping
Occasionally, people accuse surplus countries of dumping products on the markets of deficit countries. People attribute various motivations to surplus countries for "dumping." The deficit country, however, benefits by having products available at much cheaper prices. Remember, markets exist to satisfy the needs and preferences of consumers. The objections to "dumping" echo the objections to "monopolies," which I will address at a later time.
Foreign Aid
Some countries that have trade surpluses also receive foreign aid. Wouldn't it prove better for both countries to allow the surplus country to exploit its comparative advantage rather than distorting market forces by delivering foreign aid?
Monolithic Economy
In my previous newsletter, I addressed the misconception of a monolithic economy, in which the dollar amounts of imports and exports were each aggregated. Surpluses, as with deficits, result from the exchange of different products. Finding the total number of dollars exchanged for imported goods and exported goods and calculating the difference provides no meaningful information.
Remember, surplus countries that receive dollars must spend them on dollar-denominated goods, services, and securities. I will discuss the complex nature of dollar-denominated transactions in my next newsletter.
Conclusion
Countries that have a trade surplus do not rip off deficit countries. If a country gains a trade advantage in violation of some international law, it should face legal challenges. If the goods involved in a trade surplus create a threat to the deficit country, that country should use some tool other than tariffs to address that threat.