How to Calculate the Terms of Trade

The terms of trade equal the index of export prices divided by the index of import prices, times 100.

The Terms of Trade formula

Terms of trade = (index of export prices ÷ index of import prices) × 100
Above 100 means export prices have risen faster than import prices since the base year
Percent change = (new index − old index) ÷ old index × 100

Calculator

Divide the export price index by the import price index to get the terms of trade, then track a later price move.

Export price index

Base year equals 100, shared with the import index.

Import price index

Same base year, or the ratio compares nothing.

Export price index later

Optional second period, used for the change figures below.

Import price index later

The matching import index for that later period.

Terms of trade

125

An export index of 120 over an import index of 96 gives 125.

Change since the base year: 25%
Terms of trade later: 90
Change between the two periods: −28%
Reading: Deterioration

How to calculate Terms of Trade, step by step

1
Get both price indexes. The export price index and the import price index must share a base year in which each equals 100.
2
Divide exports by imports. Put the export price index on top and the import price index underneath.
3
Multiply by 100. This rescales the ratio into an index so that the base year reads exactly 100.
4
Interpret the level. Above 100 means one unit of exports now buys more imports than in the base year, an improvement in the terms of trade.
5
Track the change over time. Compare two terms of trade values with the percentage change formula to say whether they improved or deteriorated.

Worked example: Terms of Trade

A country's export price index is 120 and its import price index is 96, both on a base year of 100. Terms of trade = (120 ÷ 96) × 100 = 125, so a unit of exports buys 25% more imports than it did in the base year. Later, export prices slip to 108 while import prices climb to 120, giving terms of trade = (108 ÷ 120) × 100 = 90. The index fell from 125 to 90, a deterioration of (90 − 125) ÷ 125 × 100 = −28%.

Terms of Trade questions

What does a terms of trade above 100 mean?

It means export prices have risen faster than import prices since the base year, so each unit of exports pays for more imports than it used to.

Is this the same terms of trade used in comparative advantage questions?

No. In comparative advantage problems the terms of trade is the exchange ratio between two goods, and it has to sit between the two countries' opportunity costs.

Do improving terms of trade always help a country?

Not always, because higher export prices can come from a stronger currency that also cuts export volumes. The effect on export revenue depends on how elastic foreign demand is.

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Last updated August 1, 2026

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