Difference between Balance of Trade and Balance of Payments

The balance of trade is the most significant part of the balance of payments (under the current account component). A country can run a trade deficit but still have a surplus in its balance of payments. If the other components of the balance of payments (financial account and capital account) are in large enough surpluses, it will offset a trade (current account) deficit.

For example, even with a trade deficit, foreigners could invest heavily in a country’s assets by buying real estate, owning oil drilling operations, or investing in local businesses. These investments could overshadow the trade deficit, leading to a surplus in the balance of payments.