Terms of trade (TOT) is a measure of the relative price of exports in terms of imports. It is defined as the ratio of export prices to import prices and can be interpreted as the amount of import goods an economy can purchase per unit of export goods. TOT is expressed as a ratio that reflects the number of units of exports that are needed to buy a single unit of imports. The TOT index is defined as the value of a countrys total exports minus the value of its total imports.

To calculate TOT, price indices for exported and imported goods must be defined and compared. In the simplified case of two countries and two commodities, TOT is defined as the ratio of the total export revenue a country receives for its export commodity to the total import revenue it pays for its import commodity. In the more realistic case of many products, TOT is the ratio of a countrys export price index to its import price index, multiplied by 100.

If the export prices increase more than the import prices, a country has a positive TOT, as for the same amount of exports, it can purchase more imports. Conversely, if import prices increase more than export prices, a country has a negative TOT, and it can purchase fewer imports for the same amount of exports.

The concept of TOT is important because it indicates how the gains from international trade will be distributed among trading countries. An abrupt change in a countrys TOT can cause serious balance-of-payments problems if the country depends on the foreign exchange earned by its exports to pay for the import of its manufactured goods and capital equipment.