THE FLOW OF GOODS: EXPORTS, IMPORTS AND NET EXPORTS
Exports are domestically produced goods and services that are sold abroad, and imports are foreign produced goods and services that are sold domestically. When Boeing, the U.S. aircraft manufacturer, builds a plane and sells it to Air France, the sale is an export for the United States and an import for France. When Volvo, the Swedish car manufacturer, makes a car and sells it to a US. resident, an import for the United States and an export for Sweden.
The net exports of any country are the difference between the value of its exports and the value of its imports:
Net exports = Value of country’s exports – Value of country’s imports
The Boeing sale raises US. net exports, and the Volvo sale reduces US. net exports. Because net exports tell us whether a country is, in total, a seller or a buyer in world markets for goods and services, net exports are also called the trade balance. If net exports are positive, exports are greater than imports, indicating that the country sells more goods and services abroad than it buys from other countries. In this case, the country is said to run a trade surplus. If net exports are negative, exports are less than imports, indicating that the country sells fewer goods and services abroad than it buys from other countries. In this case, the country is said to run a trade deficit. If net exports are zero, its exports and imports are exactly equal, and the country is said to have balanced trade.
In the next chapter, we develop a theory that explains an economy’s trade balance, but even at this early stage, it is easy to think of many factors that might influence a country’s exports, imports, and net exports. Those factors include the following:
• The tastes of consumers for domestic and foreign goods
• The prices of goods at home and abroad
• The exchange rates at which people can use domestic currency to buy foreign currencies
• The incomes of consumers at home and abroad
• The cost of transporting goods from country to country
• Government policies toward international trade
As these variables change, so does the amount of international trade.