What is the difference between visible and invisible trade?

The distinction between visible and invisible trade revolves around the types of goods and services that are being exchanged. Visible trade refers to tangible goods that are bought and sold, such as cars, textiles, and electronics. In contrast, invisible trade pertains to intangible services, such as insurance, banking, tourism, and other service-related transactions.

When relating this to balance of trade, which is a key concept in international economics, it represents the difference between the value of a country's visible exports and imports. A nation’s balance of trade is crucial for understanding its economic position globally, as it indicates whether it is a net exporter or importer of physical goods.

In this context, visible trade makes up a significant portion of the balance of trade, while invisible trade is factored into the balance of payments, an even broader measure that accounts for all transactions and economic exchanges between a country and the rest of the world. This makes the balance of trade a defining factor in understanding the implications of these two types of trade on a nation’s economy.