What are Net Exports?

What are Net Exports?

Definition

A country’s net exports are the value of its exports minus its imports.

Net exports = Total exports – total imports

If a country’s exports exceed its imports, the net export figure will be positive. Conversely, if imports are greater than exports, the net export figure will be negative. If a country has negative net exports, it is said to be running a trade deficit.

What does the term net exports mean?

The products that a nation exports could be determined by the fact that it has an abundance of natural resources. For example, many Middle Eastern countries, notably Saudi Arabia, are exporters of oil. That’s because there are massive oil reserves in the Middle East.

A country could also be an exporter of a particular product because of the technical skills and expertise of its people. In 2017, the U.S. exported civilian aircraft and aircraft engines of a total value of $99 billion.

Another factor that determines the level of exports is the strength of a country’s currency. If a country has a weak currency, it will help to boost its exports. That’s because the importing country will have to pay a lower amount in its own currency to purchase the products that it is importing. Similarly, a strong currency could lead to a country’s exports being uncompetitive.

A country that exports more than it imports will have a trade surplus. This means that at an aggregate level, the demand for its goods and services in other countries exceeds the demand for imports within the country.

Example of net exports

According to recent World Bank data, annual U.S. exports of goods stand at $1.45 trillion and service exports are $752 billion making for a total of $2.2 trillion. But imports are higher at $2.75 trillion leading to a trade deficit of $0.55 trillion.

Net exports = Total exports – total imports

Net exports = $2.2 trillion – $2.75 trillion

Net exports = -$0.55 trillion

What impact does a negative net export figure have on the U.S. economy?

Firstly, the higher level of imports suggests that American consumers are gaining an advantage. They are able to buy low-cost goods and services. Local manufacturers cannot compete because of their higher cost structure.

However, over the long-term, a trade deficit could be a disadvantage. It may lead to a loss of jobs in America as the demand for local goods falls. But this may not always be the case. Despite the U.S. running a large trade deficit, unemployment figures are at very low levels in the country.

The trade deficit in the U.S. could work to the country’s advantage in one more way. As imports exceed exports, the demand for the U.S. dollar falls. That is because producers in foreign countries convert dollars into their local currencies. The result, which is a weaker dollar, helps American exporters gain a competitive edge.

Summary

A country’s net export figure provides an idea about its trade balance. A positive net export figure means that exports exceed imports while a negative net export figure points to a trade deficit.

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