What Are Net Exports?
Net exports are the value of a country's total exports minus the value of its total imports. It is a measure used to aggregate a country's expenditures or gross domestic product in an open economy. In other words, net exports equal the amount by which foreign countries spend on a home country's goods and services exceeds the home country's spending on imported foreign goods and services.
An Explanation of Net Exports
Another term for net exports is the balance of trade (BOT). Positive net exports represent a trade surplus, while negative net exports imply a trade deficit. Exports consist of all the goods and other marketable services a country provides to the rest of the world, including merchandise, freight, transportation, tourism, communication, and financial services.
If a country has a weak currency, its exports are generally more competitive in international markets, which encourages positive net exports. Conversely, if a country has a strong currency, its exports are more expensive and domestic consumers can buy foreign exports at a lower price, which can lead to negative net exports.
- Net exports are the value of a country's total exports minus the value of its total imports.
- Another term for net exports is the balance of trade (BOT).
- Positive net exports represent a trade surplus, while negative net exports imply a trade deficit.
Calculating Net Exports and Net Imports
According to World Bank data, as of 2017, the most prolific exporters by percentage of gross domestic product (GDP) included:
- Luxembourg at 230.02%
- Hong Kong at 188%
- Singapore at 173.35%
- Ireland at 120.01%
- Vietnam at 101.56%
The countries that exported the least as a share of GDP in 2017 included Ethiopia at 7.74%, Pakistan at 8.24%, Sudan at 9.69%, Nepal at 9.76% and Kiribati at 9.92%.
On the importation of goods and service side, 2017 World Bank data show Brazil imported the least amount at 11.55% of GDP, followed by Sudan at 11.82%, Argentina at 13.84%, Pakistan at 17.55%, China at 18.05% and Uruguay at 18.43%.
Information from these two data sets allows the calculation of the net exports and net imports and will indicate if a country had a positive or negative trade balance. The export and import data for Luxembourg and Singapore show that both countries were net exporters.
- Luxembourg's exports were 230.02% of GDP, and its imports were 193.97% of GDP, giving a positive value for net exports.
- Singapore's exports were 173.35%, and its imports were 149.08%, also giving a positive value for net exports.
- Pakistan, on the other hand, had exports at just 8.24% and imports at 17.55%, giving a negative value for net exports and making Pakistan a net importer.
- Similarly, Kiribati had exports at 9.92% and imports at 95.41%, making it a net importer.
Trade Balances and the Economy
Many economists state that running a consistent trade deficit harms an economy because domestic producers have an incentive to relocate overseas, it creates pressure to devalue a nation's currency, and may cause a lowering of the interest rates.
However, the United States has the world's largest GDP and deficit, so it appears that neither positive nor negative net exports are inherently detrimental. The free market uses exchange rate adjustments to keep trade balances in check.
Real World Example of Net Exports
For example, if foreigners buy $200 billion worth of U.S. exports and Americans buy $150 billion worth of imports in a given year, net exports are a positive $50 billion. Factors affecting net exports include prosperity abroad, tariffs and exchange rates.