What Is an Export?

An export is 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.

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Export

Export Explained

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.

Exports facilitate international trade and stimulate domestic economic activity by creating employment, production, and revenues. According to research giant Statista, as of 2017, the world’s largest exporting countries (in terms of dollars) are China, the United States, Germany, Japan, and The Netherlands. China has exports of approximately $2.3 trillion in goods, primarily electronic equipment, and machinery. The United States exports approximately $1.5 trillion, primarily capital goods. Germany's exports, which come to approximately $1.4 trillion, are dominated by motor vehicles—as are Japan's, which total approximately $698 billion. Finally, The Netherlands has 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.

Exports and Trade Barriers

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.

Challenges of Exporting

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. 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 have led to 25% tariffs being slapped on the corn-based spirit, leaving a sour taste in the mouths of many distillers, exporters, and distributors.