Exports are goods and services that are produced in one country and purchased by the residents of another country. It doesn't matter what the good or service is, or how it's sent.
A product can be shipped, sent by email, or carried in personal luggage on a plane. It's an export if it's produced domestically and sold to someone in a foreign country. The effects of this process can trickle down to consumers.
Definition and Examples of Exports
Exports are a component of international trade. They're the goods and services bought by a country's residents that are produced by a foreign nation. In combination with imports, they make up a country's trade balance.
A country has a trade surplus when it exports goods more than it imports. It has a trade deficit when it imports more than it exports.
The United States imported $903.4 million in goods between January and April 2021. It exported $554.1 million in goods during that same period. This created a deficit of $349.3 million.
Businesses export goods and services when they have a competitive advantage. They're better than any other company at providing that particular product.
They also export products and services that reflect the country's comparative advantage. Countries have comparative advantages in commodities that they have a natural ability to produce. For example, Kenya, Jamaica, and Colombia have the right climate to grow coffee. This gives their industries an edge in exporting coffee.
India's population is its comparative advantage. Its workers speak English, which gives them an edge as affordable call center workers. China has a similar advantage in manufacturing due to its lower standard of living. Its workers can live on lesser wages.
How Exports Work
Most countries want to increase their exports. Their companies want to sell more, and they want to sell overseas when they've sold all they can to their own country's population. They gain expertise in producing goods and services, and they gain knowledge about how to sell to foreign markets.
The more a country exports, the greater its competitive advantage.
Governments encourage exports because they increase jobs, bring in higher wages, and raise the standard of living for residents. People become happier and more likely to support their national leaders as a result.
Exports also increase the foreign exchange reserves held in a nation's central bank. Foreigners pay for exports either in their own currency or the U.S. dollar. A country with large reserves can use this to manage its own currency's value. It has enough foreign currency to flood the market with its own currency. That lowers the cost of their exports in other countries.
Countries also use currency reserves to manage liquidity. That means they can better control inflation, which is the result of too much money chasing too few goods. They use foreign currency to purchase their own currency in an effort to control inflation. That decreases the money supply, making the local currency worth more.
How Countries Boost Exports
Countries try to increase exports in three ways.
First, they use trade protectionism to give their industries an advantage. This usually consists of tariffs that raise the prices of imports. They also provide subsidies on their own industries to lower prices. But then other countries can retaliate with the same measures, lowering international commerce for everyone. The Smoot-Hawley tariff lowered trade by 65% and worsened the Great Depression.
Second, countries also increase exports by negotiating trade agreements. They boost exports by reducing trade protectionism. The World Trade Organization tried to negotiate a multilateral agreement among its 149 members. This Doha agreement almost succeeded, but the European Union and the United States refused to eliminate their farm subsidies.
Most countries relied on bilateral agreements or regional trade agreements for years as a result, but then the Obama administration negotiated the Trans-Pacific Partnership in 2015. The Trump administration dropped out in 2017, but the other countries completed the agreement without the United States.
The third way countries boost exports is to lower the value of their currencies. This makes their export prices comparatively lower in the receiving country. Central banks do this by lowering interest rates. A government can also print more currency or buy up foreign currency to make its value higher. Countries that try to compete by devaluing their currencies are said to be in currency wars.
- Exports are products or services that are produced or manufactured in one country and sold in another.
- Exports help a nation grow. As a trading component, they assume importance in diplomatic and foreign policies.
- Countries export goods and services in which they have a competitive or comparative advantage.
- Governments encourage exports because they increase revenues, jobs, foreign currency reserves, and liquidity.