What are 'Net Exports'
Net exports refer to the value of a country's total exports minus the value of its total imports. It is used to calculate a country's aggregate expenditures, or GDP, in an open economy. In other words, net exports equals the amount by which foreign spending on a home country's goods and services exceeds the home country's spending on foreign goods and services.
BREAKING DOWN 'Net Exports'For example, if foreigners buy $200 billion worth of U.S. exports and Americans buy $150 billion worth of foreign imports in a given year, net exports is a positive $50 billion. Factors affecting net exports include prosperity abroad, tariffs and exchange rates.
Another term for net exports is balance of trade; positive net exports means a trade surplus and negative net exports means a trade deficit. Exports consist of all the goods and other market services a country provides to the rest of the world, including merchandise, freight, transportation, tourism, communication and financial services.
Effect of Currency Value on Trade
If a country has a weak currency, its exports are more competitive, or cheaper, in international markets, helping make net exports positive. Conversely, if a country has a strong currency, its exports are more expensive, and domestic consumers can buy foreign exports more cheaply, factors which can lead to negative net exports.
Net Exporters and Net Importers
The most prolific exporters in the world include Singapore at 188% of GDP in 2014; Ireland at 114%; United Arab Emirates at 98%; Malaysia at 74%; and Switzerland at 64%. The countries that export the least as a share of GDP include Brazil at 11%; Ethiopia at 12%; United States at 13%; Argentina at 15%; and Japan at 18%.
This information alone does not reveal whether any of these countries had a positive or negative trade balance. To calculate this, information regarding imports is also needed. In 2014, Brazil imported the least at 14% of GDP, followed by Argentina at 15%; United States at 17%; Japan at 21%; Ethiopia at 29%; Switzerland at 53%; Malaysia at 65%; United Arab Emirates at 78%; Ireland at 95%;, and Singapore at 163%.
Using this data, it can be determined that Singapore, Ireland, United Arab Emirates, Malaysia and Switzerland were net exporters in 2014. Brazil, Ethiopia, United States and Japan were net importers, while Argentina was neutral.
Many economists state that running a consistent trade deficit has a negative effect on an economy, due to the incentive for domestic production to move overseas and the pressure it puts on a nation's currency to devalue and interest rates to fall. However, the United States boasts both the world's largest GDP and deficit, so it appears neither positive nor negative net exports are inherently detrimental. Exchange rate adjustment is the instrument the free market uses to ensure trade balances are not too dramatic in either direction.