View FREE Lessons!
Definition of Exports:
are goods and services that are produced in one country and sold to another country.
Companies expand their market by increasing the number of countries they export to. In other words, entering a new country increases the demand for the company’s goods or services. An export for the manufacturing country is an import for the buying country. For example, cars manufactured in Japan and sold in France are an export for Japan and an import for France.
Exports are also added to a country’s GDP since they are produced in the exporting country. Most governments encourage increasing exports. The added production generates new jobs, added income, and economic growth. Countries export goods they have a comparative advantage in producing. A country has a comparative advantage when it is able to produce the good or service at a lower opportunity cost than the importing country. Specializing enables both the importing country and exporting country to increase their wealth by producing goods and services they are the most efficient at and relying on others to provide for their other needs. Some countries subsidize industries they want to grow to provide their businesses an advantage over the international competition.
Governments recognize the benefits and costs of trade. They strive to protect the jobs of their citizens while opening markets for companies domiciled within their borders. Trade agreements recognize the mutual benefit and provide the conditions of exchange between parties in all the nations that are party to the agreement. The North American Free Trade Agreement (NAFTA) created a free-trade zone, which removed all barriers to trade between the participating nations. It remains a controversial agreement between the United States, Canada, and Mexico. American opposition centers on the number of jobs lost to less expensive workers. Supporters argue that it has opened new markets and reduced costs, which enabled American companies to compete globally. The Trans-Pacific Partnership is an agreement negotiated between twelve Pacific-rim nations (It does not include China.), signed February 4, 2016, but presently not ratified by the United States Congress. Its objective is to lower tariff and non-tariff barriers to trade. Supporters say it will advance economic growth. Opponents say it will cost too many jobs and raise concerns about enforcement. The European Union also provides a free trade zone that includes 27 countries.
Countries facing economic hardship will devalue their currency to increase exports. A devalued currency makes goods and services less expensive in other countries. For example, if the exchange rate between the US dollar and the Brazilian real is 1 dollar for 1 real, then something costing 300 real would cost $300 (300 x 1.00) in the United States. If the Brazilian government devalued its currency 50 percent, then 1 dollar would buy 2 real. Something costing 300 real could be sold in the United States for $150. Such a drop would certainly encourage exports! The problem is, the same situation works in reverse. Brazilians would pay a much higher price for goods and services imported from the United States. Higher prices for American goods will increase the demand for Brazilian manufacturers of the same good.
A balance of payments equals total exports minus total imports. A trade surplus means exports exceed imports, while a trade deficit means imports exceed exports. During recessionary periods, a trade surplus is more beneficial. The exports add jobs and help grow the economy when it needs it most. Trade deficits are best when a country is in an expansion and inflationary pressures are rising. The added competition from foreign producers helps restrain price increases.
Dig Deeper With These Free Lessons:
Gross Domestic Product – Measuring An Economy's Performance
Comparative Advantage and Specialization
Managing Supply Using Outsourcing, Tariffs, Subsidies, Quotas and Licenses
Changes in Demand – When Consumer Tastes Change