Final answer:
A trade surplus occurs when a country's exports exceed its imports, leading to a net inflow of domestic currency. This creates excess financial capital that can be invested overseas. It is generally expected that high-income economies will have trade surpluses, exporting more than they import, while lower-income economies experience trade deficits.
Step-by-step explanation:
When a country runs a trade surplus, it means that its exports are greater than its imports, resulting in a net inflow of domestic currency from foreign markets. This economic condition demonstrates that a country is selling more goods and services to other countries than it is buying from them. During the 1960s, the US experienced this scenario; despite the government running a budget deficit, the nation enjoyed a trade surplus.
A trade surplus leads to a situation where there is excess domestic financial capital. Since there is more inflow of money from exports, there is significant financial capital available which can be used to invest in foreign assets. Consequently, a trade surplus results in a net outflow of financial capital to other countries, meaning the surplus allows a country to invest abroad.
The pattern of trade imbalances typically observed globally posits that wealthier, high-income economies run trade surpluses, thus exporting more than they import and investing excess capital in global markets. In contrast, low- and middle-income economies tend to run trade deficits, where their imports exceed exports, and they experience a net inflow of foreign capital into their economies.