For balance of payments obsessives. Here are two scenarios.

1) trade surplus £1bn, total exports £50bn, total imports £49bn
2) trade deficit £10bn, total exports £140bn, total imports £150bn

Which is better?

Here's another thought experiment. Yearly movement, this time.
Opening: trade balance negative £10bn, total exports £140bn, total imports £150bn
Closing: trade balance positive £1bn, total exports £130bn, total imports £129bn.

What do you think has happened to the economy?

And here's another one. Currency implications, this time.

Opening: trade balance negative £10bn, total exports £140bn, total imports £150bn.

General ad valorem tariff of 10% imposed on imports.

What might be the effect on 1) the exchange rate 2) the trade balance, and why?

In case you were wondering, all three of my examples are real. First tweet was about progression from developing country to developed: value of both exports and imports increases, but imports increase more as middle class develops, so trade balance deteriorates.

The second tweet is a "sudden stop". Usually this happens when a country runs out of FX to pay for imports: exports fall too (bcs import collapse deprives the export sector of inputs), but not by as much, so the trade balance closes. It is accompanied by deep recession.

what the UK has just experienced is a "sudden stop", though because of pandemic restrictions not FX crisis.

The third tweet is a simplified version of what the US has been doing recently. General ad valorem tariffs on imports raise the exchange rate (hence the strong dollar). This negates the effect of the tariffs on consumers but hits the export sector. So the trade balance widens.

The point, obviously, is that a trade deficit is not *of itself* a bad thing. Crushing imports to close a trade deficit may be necessary if the country is short of FX, but it is wholly unnecessary for a country that has no need for FX (I'm looking at you, USA).

Also, when the exchange rate is floating, tariffs on imports hurt exporters. If you don't believe me, read Abba Lerner (remembering that a tariff is a tax). https://www.nber.org/papers/w23427 

For a rich developed country like the UK, a trade deficit is not by itself a major problem, since it is unlikely to have difficulties obtaining FX. Deliberately closing the deficit by crushing imports is folly, except in pursuit of some other goal such as controlling infection.

However, a persistent trade deficit may indicate supply side rigidities and weak public and private sector sector investment. These can be solved without explicitly targeting the trade balance or manipulating the currency.

In short - leave the trade balance ALONE. Closing a deficit doesn't make you richer, and deliberately running a surplus is beggar-my-neighbour. And tariffs have unfortunate effects. Just focus on becoming very good at trade.

END.

Here's a piece I wrote a while ago explaining how general ad valorem import tariffs raise exchange rates. https://www.americanexpress.com/us/foreign-exchange/articles/tariffs-affect-foreign-currency-exchange-rates/#:~:text=How%20Import%20Tariffs%20Raise%20Foreign%20Currency%20Exchange%20Rates&text=In%20the%20U.S.%2C%20prices%20of,would%20rise%20by%2010%20percent.