A trade surplus occurs when a country exports more than it imports. A country’s trade balance can be calculated from a simple formula: Total Value of Exports - Total Value of Imports. When a country exports more than it imports, its currency rises in value relative to other currencies. The country also has more control over its currency because less of it is leaving the country.
A trade surplus may eventually work back to equality where imports equal exports and can even result in a trade deficit, where exports are less than imports. This happens because as a country’s currency rises, it costs more for other countries to purchase its products (exports). As demand for the country’s products decreases, so do its exports and currency.
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