What Are Net Exports?
Net exports are a measure of a nation's total trade. The formula for net exports is a simple one: The value of a nation's total export goods and services minus the value of all the goods and services it imports equal its net exports.
A nation that has positive net exports enjoys a trade surplus, while negative net exports mean the nation has a trade deficit.
A nation's net exports may also be called its balance of trade.
Understanding Net Exports
Some economists believe that running a consistent trade deficit harms a nation's economy by giving domestic producers an incentive to relocate overseas, creating pressure to devalue the nation's currency, and forcing a lowering of its interest rates.
- A nation's net exports are the value of its total exports minus the value of its total imports.
- A positive net export number indicates a trade surplus, while a negative number means a trade deficit.
- A weak currency exchange rate makes a nation's exports more competitive in price.
However, the United States has both the world's largest deficit and its largest gross domestic product (GDP). That suggests that running a trade deficit is not inevitably detrimental. The free market keeps trade imbalances in check with the aid of exchange rate adjustments.
If a nation's currency is weak, its exports are more competitive in international markets, which encourages positive net exports. If a country has a strong currency, its exports are more expensive and consumers will pass them up for cheaper local products, which can lead to negative net exports.
Exports consist of all the goods and other services a country sends to the rest of the world, including merchandise, freight, transportation, tourism, communication, and financial services.
Examples of Net Exports Numbers
According to World Bank data, the most prolific exporter by percentage of gross domestic product in 2018 was Luxembourg at 224.8%. If you don't recall buying any products made in Luxembourg lately, you should know that its main trading partners are Germany, France, and Belgium, and it exports many products including steel and machinery, diamonds, chemicals, and food.
Other leading export countries in 2018 included:
- Ireland at 122.3%
- Malta at 144.6%
- Singapore at 176.4
- Vietnam at 95.4%
The countries that exported the least as a share of GDP in 2018 included Ethiopia at 8.4%, Pakistan at 8.5%, Sudan at 10.2%, and Nepal at 8.8%.
To see examples of how nations calculate net exports, we first have to see the World Bank data on the imports side for the same year.
Net Export Deficits and Surpluses
For example, Ireland's imports came in at 89.2% as a percentage of GDP in 2018, while Luxembourg's imports totaled 190.7%. By subtracting those figures from the nations' total exports, we find that Ireland had net exports of 33.1% in 2018, while Luxembourg had net exports of 34.1%.
Pakistan showed imports totaling 19.4% of GDP in 2018. Since its exports were only 8.5% of GDP, the nation's net exports were -10.9% as a percentage of GDP. Pakistan had a trade imbalance.
For 2017, the latest year available, the U.S. had net exports totaling 12.1% of GDP while it had net imports of 15% of GDP. So, yes, the U.S. had a trade deficit of 2.9%.