Exports

BIBLIOGRAPHY

Exports are goods and services produced within one country (or territory) and sold by economic agents (individuals or firms) of that country to economic agents of another country. Exports are an important part of international trade, the counterpart being imports, which allow countries to participate in the global economy by expanding their markets for goods and services.

Exports originated with the start of communication and have been present since prehistoric times. According to the historian Peter Watson, people begun bartering goods and services 150,000 years ago, as part of long–distance commerce. There is also evidence of exchange of obsidian and flint during the Stone Age, while materials used for making jewelry were exported to Egypt since 3,000 BCE. Long–range export routes first appeared in the third millennium BCE, when Sumerians in Mesopotamia traded with the Harappan civilization, and continued with the Phoenicians, who traveled across the Mediterranean Sea and established trade colonies. From the beginning of the Greek civilization until the fall of the Roman Empire in the fifth century, exports from the Far East to Europe flourished. However, the fall of the Roman Empire and the Dark Ages led to a disruption of the main export networks. Subsequently, noteworthy landmarks included the contribution of Vasco da Gama to the trade of spices and the dominance of Holland, Portugal, and Britain in the sixteenth, seventeenth, and eighteenth centuries, respectively. Exports continued to expand in the nineteenth and twentieth centuries, particularly after World War II with the creation of international institutions, and in the twenty–first century with the telecommunications revolution.

The reduction of barriers to international trade has been crucial for exports. With technology improvements—container ships, telecommunication networks, and the Internet—it is easy for producers in one country to reach consumers in another and to export their products quickly. Governments have also recognized the importance of free trade and have reduced export (and import) quotas and tariffs, including in the context of multilateral agreements (the European Union and the North American Free Trade Agreement). Moreover, the World Trade Organization was created to facilitate free trade by mandating mutual most favored nation trading status between all members. Finally, to help exporters find markets for their products, countries have set up export promotion agencies as an integral part of their export strategies.

The payments and receipts associated with exports take place in major international currencies (U.S. dollar, euro, and yen) and are recorded in the current account of the balance of payments. The latter is usually kept in terms of the international currency in which the country’s majority of trade transactions are conducted. The current account balance is calculated as the difference between exports and imports of goods and services. When the value of receipts from external transactions exceeds (falls short of) the one of payments, the country runs a current account surplus (deficit). Several different models have been developed to study export developments and analyze the effects of export policies. The Ricardian model— developed during the first quarter of the nineteenth century by economists David Ricardo, James Mill, and Robert Torrens—postulates that countries specialize in producing and exporting what they produce best. The Heckscher–Ohlin–Samuelson (H–O–S) model incorporates the neoclassical price mechanism and argues that the pattern of exports (and trade) is determined by differences in factor endowments (labor, capital, and know–how). It predicts that countries will export (or import) goods that make intensive use of locally abundant (or scarce) factors. Finally, the gravity model postulates that exports and imports are determined by the distance between countries and the interaction of the countries’ economic sizes.

Macroeconomic policy could have significant influence on export developments, since the demand for a country’s exports is a function of each good’s price in foreign currency. Thus, macroeconomic policies that affect the exchange rate weigh on exports. For example, tight monetary and expansionary fiscal policy both lead to a higher real interest rate, which makes domestic assets attractive to foreign investors; as foreigners demand domestic assets, the real value of the domestic currency rises sharply. Because the domestic currency is strong, exports become more expensive and thus could fall sharply.

One measure to gauge the importance of exports is their ratio to gross domestic product, known as the index of openness. Countries with high value of the index are considered relatively open, while the opposite is the case for relatively closed economies. In line with globalization trends, the average (worldwide) index of openness increased from 30 percent in 1980–1990 to 40 percent in the beginning of the twenty–first century. The most open economies have values of the index over 100 percent: Hong Kong (190% in 2004), followed by Luxemburg (146%), and Malaysia (121%). On the other hand, relatively closed economies are characterized by low openness indexes: Burkina Faso (8.6%), Burundi (8.9%), and Rwanda (10.3%).

According to the World Trade Organization, in 2005 total exports reached $12.6 trillion, comprising $10.2 trillion of merchandise exports and $2.4 trillion exports of commercial services. Exports of goods and services each increased by an annual average of 10 percent over the 2000–2005 period. Europe dominates world exports, accounting for 43 percent of the total in 2005; Asia follows with 28 percent, and North America with 15 percent. At the individual country level, in 2005 the five largest exporters of merchandise goods were: Germany (9.3% of world exports), the United States (8.7%), China (7.3%), Japan (5.7%), and France (4.4%). The leading exporters of services were: the United States (14.7% of world exports), United Kingdom (7.8%), Germany (6.2%), France (4.8%), and Japan (4.5%).

Turning to the commodity composition, manufacturing exports have led overall growth, increasing by an average of 6.5 percent annually during 1990–2005 compared with 3.5 percent for agricultural products and 3.5 percent for fuels and mining products. In 2005 merchandise exports comprised: $7,312 billion manufacturing, $1,748 billion fuels and mining products, and $852 billion agricultural products. As for services, transportation accounted for $570 billion, travel for $685 billion, and other services for $1,160 billion.

Globalization trends and improvements in telecommunications will support strong export dynamics over the medium and long term. However, due attention needs to be paid to maximize the benefits for economic growth of all countries. In this connection, although recent efforts on trade liberalization are encouraging, some calls for protectionist policies raise concerns. There is no doubt that continued trade liberalization will create more opportunities and raise the potential for faster global growth.

SEE ALSO Absolute and Comparative Advantage; Balance of Payments; Balance of Trade; Exchange Rates; Heckscher-Ohlin-Samuelson Model; Imports; Liberalization, Trade; Macroeconomics; Mill, James; Ricardo, David; Samuelson, Paul A.; Trade; Trade Deficit; Trade Surplus; World Trade Organization

BIBLIOGRAPHY

Heckscher, Eli. [1919] 1949. The Effect of Foreign Trade on the Distribution of Income. In Readings in the Theory of International Trade, ed. American Economic Association. Philadelphia: Blakiston.

Ohlin, Bertil. 1933. Interregional and International Trade. Cambridge, MA: Harvard University Press.

Ricardo, David. 1821. On the Principles of Political Economy and Taxation. 3rd ed. London: John Murray.

Watson, Peter. 2005. Ideas: A History of Thought and Invention from Fire to Feud. New York: HarperCollins.

World Trade Organization. 2006. International Trade Statistics. Geneva: Author.

Costas Christou

Exports

What It Means

Exports are any goods and services that are sold to foreign buyers. They are produced or manufactured in the home country and transported legally across borders. The United States exports many goods to other countries, including wheat, corn, soybeans, tobacco, automobiles, and chemicals.

Exports are the opposite of imports, which are goods and services a country purchases from international sources. The exchange of exports and imports is the branch of economics known as international trade. For most countries, international trade—selling exports abroad and buying imports from other countries—makes up a significant portion of the gross domestic product (GDP), the value of all the goods produced within a country in a certain period of time. Thus, the amount that a country exports and imports plays a crucial role in that nation’s overall economic health.

When a country has an established trading system, its exports to other countries can make up a significant portion of its manufacturing and production base. The United States is the largest trading country in the world; its exported goods include electrical machinery, software, financial services, appliances, road vehicles, office machines, and cereals; the production of these goods requires many U.S. factories, farms, and manufacturers. The major trading partners of the United States are Canada, Japan, Mexico, and countries in the European Union.

The value of exports is closely tied to the value of imports. In fact, to assess the role of exported goods in a country’s economy, it is important to calculate the value of that country’s exports in relation to the value of its imports. The value of a country’s total exports minus the value of its total imports is called net exports. For example, if in a given year foreign countries buy $500 billion worth of China’s exports and Chinese consumers buy $450 billion worth of foreign imports, China’s net exports would be positive $50 billion. Net exports are positive when the amount of foreign spending on a home country’s goods and services is greater than the home country’s spending on foreign goods and services. This is called a trade surplus. When the opposite happens—the amount of foreign spending on a home country’s goods and services is less than the home country’s spending on foreign goods and services—the home country has a trade deficit. Once the net exports for a country are calculated, it can be used to calculate a country’s GDP, which provides a reliable measurement of the size of its economy.

When Did It Begin

The practice of exporting dates back to the ancient world and the first traders who traveled long distances to exchange goods. The Silk Road, a 5,000-mile system of interconnected routes through southern Asia, was used by traders and travelers from 200 bc to 900 ad. It linked China to nations as far west as the Mediterranean Sea. Initially established to support the transportation of Chinese silks from China to the West, the route came to be used for additional Chinese exports, such as porcelain, spices, and eventually gunpowder and paper. Over time, Chinese buyers sought such goods as cosmetics, silver, and perfume and used the Silk Road to import these goods from European, Central Asian, Arabian, and African suppliers.

In the sixteenth and seventeenth centuries the first businesses developed that were designed to produce goods for export to other countries. At first, this type of manufacturing and trading was carried out by the few powers that could control remote resources. For example, the Dutch East India Company, a monopoly that promoted and supported colonialist activities in Asia and Africa (colonialism is when one country controls another country or area), was formed in 1602 and developed its business and trade for almost 200 years, controlling the resources of rubber production in Central Africa.

As competition among colonialist countries intensified, companies’ exclusive control over trade dissolved. Countries developed systems of pricing and tariffs (taxes on imported goods and services) to regulate the flow of goods across borders.

Even with government oversight and controls that help regulate trade, the openness of trade between countries has still, at times, been affected by political instability. For example, free trade between European nations was disrupted during the 1930s when the United States, Germany, and other countries erected barriers to trade. These disruptions were believed by many to have been a principal cause of World War II (1939–45). In response, more than 40 countries approved an international economic plan called the Bretton Woods system. It went into effect in 1946 and included institutions and rules that discouraged countries from creating trade barriers. As a result, it contributed to a worldwide postwar economic recovery that lasted until the early 1970s.

More Detailed Information

In 2003 the United States exported $726 billion in goods, including farm products, automobiles, and raw materials such as iron ore and lumber. It also exported $320 billion in services such as financial services and tourism. The United States is the largest exporter of goods and services in the world, but the amount of money it spends on manufacturing and producing its exports is a fraction of the money it spends on the total output of goods and services, or its gross domestic product (GDP). This is because the United States has a large domestic market (goods and services produced in the United States that are purchased by Americans). Relative to other nations, the United States is self-sufficient in terms of food and resources.

Other nations, by comparison, spend a greater amount of their GDP on the production of goods and services for export. The economy of Ireland, for example, is heavily dependent on foreigners purchasing tourism services. The Southeast Asian country of Myanmar, which is very poor, has few legalized exports and is essentially a closed economy. The Saudi Arabian economy is highly dependent on its oil exports. Countries such as China and India, which are rapidly developing their economies, depend on exports to bring in foreign money, which helps to expand their markets and to increase the incomes of their workers.

Even though the United States is not as heavily dependent on exports as other countries are, in specific industries it does rely heavily on international purchasing of its products. For example, every year 25 to 50 percent of U.S.-produced rice, corn, and wheat are exported to other countries. If consumers from other countries decided to stop buying U.S. agricultural products, it would have a great impact on American farmers. Many large American corporations sell sizable amounts of their products to foreign buyers. These include the airplane manufacturer Boeing, the farm- and construction-machinery manufacturer Caterpillar, and the computer manufacturer Sun Microsystems. Other exports include movies distributed to other countries and educational services purchased when hundreds of thousands of foreign students attend U.S. universities every year.

Countries do not usually export the same amount that they export. The difference between its exports and imports is known as the trade balance (or balance of trade), and it is calculated by subtracting the value of imports in a given year from the value of exports that year. When a country imports more than it exports in a given time period, it has a negative trade balance, also known as a trade deficit. When the value of exports exceeds the value of imports, it is known as a trade surplus.

Many factors can affect a country’s balance of trade, including its advantage in producing certain goods and services. Japan, for example, has an advantage in the production of electronic games, which allows it to export more and hence improve its trade balance. Another factor affecting a country’s balance of trade is the standing of its currency relative to the currencies of its trading partners. For instance, if the Japanese yen is weak (less valuable), the goods produced in other countries will be more expensive for Japanese consumers.

One of the ways in which a country may manage and influence its balance of trade is to apply tariffs to the goods it imports from abroad. A tariff (also called an import duty) is a tax charged on goods when they are imported into a country. It is usually levied (charged) as a percentage of the declared value of the good. In order to pay tariffs, foreign manufacturers must increase the price of their goods, which dissuades consumers from buying them. Tariffs thus have the effect of controlling the number of foreign products that can enter the domestic market. They are also a source of revenue for governments.

Another tool that countries use to manage the balance of trade is the quota. If the country wants to regulate the amount of a particular imported good or service, it sets a limit on the quantity of that good or service that can be imported. This is known as an import quota. Import quotas are less commonly applied than tariffs.

Recent Trends

The introduction of the Internet as a communication and marketing tool has resulted in a dramatic increase in the diversity of goods and services that are traded across international borders. The phenomenon known as globalization means, in part, that goods and services manufactured in one country are more available than ever in other countries.

In the globalized economy, jobs themselves have become resources and commodities that countries can choose to export. Many blue-collar and white-collar jobs in industrialized countries have been shifted to developing countries. When jobs are exported, it is called outsourcing or offshoring. In recent decades many U.S. corporations have employed workers in such countries as India and Canada in order to keep down the costs of paying for human resources.

International trade has grown at a much faster rate than the world economy has. The results of the growth in trade have included an overall reduction of tariffs as well as an increase in trade that is allowed without governmental restrictions such as tariffs and quotas. This is known as free trade. A country’s support of free trade does not mean that the government relinquishes control; it means that it holds back on regulations so that each nation can produce and market the products that can best compete in the international marketplace.

EXPORTS

Exports are goods and services that are produced in one country but shipped to another country for consumption. Some examples would be lumber grown in the United States but shipped to Japan; U.S. wheat shipped to Russia; Hollywood movies sent around the world; and U.S. jet fighter planes made here but sold to allied nations such as Israel and Saudi Arabia.

The United States exports thousands of types of goods and services. The United States, however, exports a relatively small portion of its total output, generally less than 10 percent, compared to some other nations. Some European nations, for example, export 25 percent or more of their total production. Where there is a difference between the amount that a country imports and the amount it exports, a trade imbalance exists.

The United States, which has the wealth to import a vast array of goods from around the world, typically runs a rather large trade deficit with other nations. This deficit worries many government officials who fear that U.S. citizens are supporting foreign workers with their dollars, but not workers at home. Because of such fears, many governments try to increase the export of their own goods and decrease imports. There are various ways to do this. Nations may give exporting companies tax breaks to encourage them to send their products overseas. Or they may create special banks whose job is to loan money to firms that export goods.

See also: Balance of Trade, Imports, Trade