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Go with the Flows – The Balancing Act of International Trade

Registration for this event is closed. Watch a livestream April 10 starting at 6:30 p.m. CT.

Date:  Wednesday, April 10, 2019
Time:  Reception: 6 p.m. (Light fare will be served.)
Program: 6:30‑8 p.m.
Location: Federal Reserve Bank of St. Louis
One Federal Reserve Bank Plaza
Broadway and Locust St.
St. Louis, Mo. 63102 (map it)

It would seem logical to assume that trade surpluses must be a positive sign for an economy, while trade deficits must be harmful. But is this really the case?

A look at international capital flows, the accounting or financial side of international trade, can shed some light.

Senior economist Paulina Restrepo-Echavarria will explore the subject of capital flows and how they are measured, and examine the impact on deficits and debt levels.

All of a country's transactions with the world are summarized in what is called its balance of payments. The balance of payments can generally be further classified into one of two subaccounts: the current account, and the capital and financial account. The current account reflects the country's trade in goods and services with other countries along with net investment income and transfers. The capital and financial account includes the country's trade in assets with other countries.

To economists, a trade surplus – when exports exceed imports – is seen as an outflow of financial capital, and a trade deficit – when imports exceed exports – is seen as an inflow of financial capital. If total exports were equal to total imports, these monetary transactions would balance at net zero – in other words, a country would receive as much in financial flows as they paid out in financial flows.

But generally a country's trade balance – exports minus imports – is not zero, and this resulting measurement is widely believed to be one of the most misunderstood economic indicators.

A panel discussion and audience Q&A will follow Restrepo-Echavarria's presentation.

The event is open on a first-come, first-served basis. There is no cost to attend, but registration is required and will close April 8 or as soon as all seats are filled.

Questions? Contact Ellen Amato at ellen.amato@stls.frb.org or 314-444-3749.

This presentation is part of the St. Louis Fed's evening discussion series, called Dialogue with the Fed: Beyond Today's Financial Headlines. View previous presentations at this site.