Imports: Definition, Examples, Effect on Economy

Are Souvenirs Imports?

asian groceries
Most countries import what they can't grow at home. Photo: Getty Images

Definition: Imports are foreign goods and services bought by residents of a country. Residents include citizens, businesses and the government. It doesn't matter what the imports are or how they are sent. They can be shipped, sent by email or even hand-carried in personal luggage on a plane. If they are produced in a foreign country and sold to domestic residents, they are imports.

Even tourism products and services are imports.

When you travel outside the country, you are importing those souvenirs. (Source: Department of Commerce.)

Imports and the Trade Deficit

If a country imports more than it exports, it runs a trade deficit. Most countries would prefer to import less and export more. In other words, a country would prefer to be a supplier to other countries. Their leaders encourage export-driven economies.

First, it's a fast way to boost economic output, as measured by gross domestic product. That creates jobs and increases wages. In turn, this raises residents' standard of living for residents. That makes them much more likely to vote for their national leaders in democracies. In countries without an elected leader, it means there's less likelihood of a revolution. 

Second, imports make a country dependent. That's especially true if it imports commodities, such as food, oil, and industrial materials. Then they rely on a foreign power to keep their population fed and their factories humming.

Third, countries with high import levels must increase their foreign currency reserves. That's how they pay for the imports. That can affect the domestic currency value, inflation, and interest rates.

Fourth, domestic companies must compete with the imports. That can drive many small businesses to bankruptcy.

But, if they succeed, they gain a competitive advantage. Through exporting, they learn to produce a variety of globally-demanded goods and services. 

Four Ways Countries Increase Exports 

Countries often start by increasing trade protectionism. That insulates their companies from global competition for awhile. They raise tariffs (taxes) on imports, making them more expensive. Then other countries retaliate, hurting global trade in the long run. In fact, this was one of the causes of the Great Depression.

In recent years, governments are more likely to provide subsidies to their industries. That lowers their costs so they can reduce prices. There is less risk of retaliation. They can say the subsidies are temporary. Countries like India, claim they're needed so the poor can afford basics like fuel and food. Some emerging markets protect new industries. They give them a chance to catch up with technology in developed markets.

A third way countries boost exports is through trade agreements. Once protectionism has lowered trade across-the-board, countries start to see the wisdom in reducing tariffs. The World Trade Organization almost succeeded in negotiating a global trade agreement. But the EU and the United States refused to end their agricultural subsidies.

As a result, countries rely on bilateral and regional agreements. 

Most countries increase exports by lowering their currency value. That has the same effect as subsidies. It lowers the prices of goods.  Central banks reduce interest rates or print more money. They also buy foreign currency to raise its value. Find out which countries are winning and losing these Currency Wars

Although the United States can produce everything it needs, emerging market countries can make many consumer items for less. That's because the cost of living is low in China, India and other developing countries. That means they can pay their workers less. That's their comparative advantage

Since the United States is a free market economy that's based on capitalism, these low-cost imports cost American jobs. U.S. companies cannot both pay a living wage and compete on price.


How Imports Contribute to the Balance of Payments

What Is the Balance of Payments?

  1. Current Account
  2. Capital Account
  3. Financial Account