What Is an Export?

By definition, exports are a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. Exports are a crucial component of a country’s economy, as the sale of such goods adds to the producing nation's gross output. One of the oldest forms of economic transfer, exports occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies. Exported goods are considered zero rated goods.

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Export

Understanding Exports

The ability to export goods helps an economy grow., and most of the largest companies operating in advanced economies derive a substantial portion of their annual revenues from exports to other countries. One of the core functions of diplomacy and foreign policy between governments is to foster economic trade, encouraging exports and imports for the benefit of all trading parties.

According to research giant Statista, in 2017, the world’s largest exporting countries (in terms of dollars) were China, the United States, Germany, Japan, and The Netherlands. China posted exports of approximately $2.3 trillion in goods, primarily electronic equipment, and machinery. The United States exported approximately $1.5 trillion, primarily capital goods. Germany's exports, which come to approximately $1.4 trillion, were dominated by motor vehicles—as were Japan's, which totaled approximately $698 billion. Finally, The Netherlands had exports of approximately $652 billion.

Key Takeaways

  • Exports are one of the oldest forms of economic transfer and occur on a large scale between nations.
  • Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share.
  • Companies that export heavily are typically exposed to a higher degree of financial risk.

Advantages of Exporting for Companies

Companies export products and services for a variety of reasons. Exports can increase sales and profits if the goods create new markets or expand existing ones, and they may even present an opportunity to capture significant global market share. Companies that export spread business risk by diversifying into multiple markets.

Exporting into foreign markets can often reduce per-unit costs by expanding operations to meet increased demand. Finally, companies that export into foreign markets gain new knowledge and experience that may allow the discovery of new technologies, marketing practices and insights into foreign competitors.

Special Consideration: Trade Barriers and Other Limitations

A trade barrier is any government law, regulation, policy, or practice that is designed to protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services.

Companies that export are presented with a unique set of challenges. Extra costs are likely to be realized because companies must allocate considerable resources to researching foreign markets and modifying products to meet local demand and regulations.

Exports facilitate international trade and stimulate domestic economic activity by creating employment, production, and revenues.

Companies that export are typically exposed to a higher degree of financial risk. Payment collection methods, such as open account, letter of credit, prepayment and consignment, are inherently more complex and take longer to process than payments from domestic customers.

Real-World Example of Exports

One example of an American export that makes its way all over the world is bourbon, a type of whiskey native to the U.S. (in fact, it is defined as a "distinctive product of the United States" by a U.S. Congressional resolution). Furthermore, if the liquor is labeled Kentucky bourbon, it must be produced in the state of Kentucky, similar to the way a sparkling wine must hail from the Champagne region of France to call itself "champagne."

The global market has developed quite a thirst for American bourbon in general and Kentucky bourbon, in particular, in the 21st century. However, in 2018, trade wars between the U.S. and the European Union and China led to 25% tariffs being slapped on the corn-based spirit, leaving a sour taste in the mouths of many distillers, exporters, and distributors.