Number: RL32591
Title: U.S. Terms of Trade: Significance, Trends, and Policy
Authors: Craig K. Elwell, Government and Finance Division 
Abstract: Economics tells us that a nation exports so that it may import. Exports are the cost  goods and services the domestic economy must give up  while imports are the benefit  foreign goods and services that we wish to acquire in trade. Clearly the nation is better off if, for any given volume of imports, it exchanges a smaller volume of exports rather than a larger volume. The nations terms of trade is a measure of the export cost of acquiring desired imports. Increases and decreases in its terms of trade indicate whether a nations gains from trade is rising or falling. While trade is a process of mutual beneficial exchange, each trading partners share of those benefits can change over time and movement of the terms of trade are an indicator of that changing share.
Pages: 12
Date: September 15, 2004