Terms of Trade - TOT

TOT or...not?

Terms of trade, or TOT for funzies, is a percentage that is calculated by comparing a country’s export value to its import value. When countries are exporting (think: selling) more then they’re importing (think: buying), then they’re gaining capital (think: making a profit).

Terms of trade = Price of exports / Price of imports x 100

If the TOT calculation is above 100%, it means a country is raking in more dough than they’re doling out. Which means they can afford to import more things. Booyah.

If terms of trade for a country is below 100%, it means they’re importing more than they’re exporting, which suggests they should probably cool it on the importing, or amp up their exports.

However, it’s not quite so simple. While TOT is considered an economic indicator, taking TOT alone can be misleading, since it’s one factor taken out of context. Directionally meaningful, but not uber-precise.