In 1987 both Japan and Brazii ran large trade surpluses-that is, each sold more goods to
the rest of the world than it bought in return. Japan's surplus of $96 billion brought complaints
from many other countries that Japan was gaining at their expense; Brazil's surplus of$12 billion
(which represented a much larger fraction ofthe country's national income) brought complaints
from the Brazilians that they were being unfairly treated. What does it mean when a country runs
a trade surplus or a trade deficit? To make sense of numbers like the trade deficit,)t is essential to
place them in the broader context of the whole of a nation' s international transactions.
The record of a country's transactions with the rest of the world is called the balance of
payments. Explaining the balance of payments, and diagnosing its significance, is a main theme
of international economics. It emerges in a variety of specific contexts: in discussing
international capital movements (Chapter 7), in relating international transactions to national
income accounting (Chapter 12), and in discussing virtually every aspect of international
monetary policy (Chapters 16 through 21). Like the problem of protectionism, the balance of
payments has become a central issue for the United States because the nation has run huge trade
deficits in every year since 1982.