What are Imports and Exports?

Imports are the goods and services a business or customer purchases from another country. Imports are a crucial part of international trade, and ensure the availability of particular goods and services when the domestic market doesn’t  offer the same products. Due to the fact that import transactions require paying sellers who are located abroad, they cause a financial outflow from the nation. For example, India buying crude oil from Saudi Arabia.

Exports are the goods and services a country produces domestically and sells to businesses or customers who reside in a foreign country. Exports are critical for a country’s economy as they boost sales and profits of the manufacturers and producers. Since export transactions entail selling domestic goods and services to international customers, they bring money into the country of the seller.

The Significance of Exports and Imports

Exports and Imports are significant because they collectively make up a nation’s trade balance, which has an effect on the state of an economy as a whole. Both imports and exports grow steadily when the economy is strong. This typically denotes a robust and sustained economy. Exports and Imports are also very important to fulfil the domestic demand for some products that are not available in the particular country. For Example, Countries like India and China rely heavily on imports to fulfil its energy demands. And countries like Saudi Arabia’s and Russia’s economies relies heavily on exports of oil and natural resources.

What is Gross Domestic Product (GDP)?

GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator of the economic performance of a country. The concept of GDP was developed by an American economist named Simon Kuznets in 1934 and is thereafter recognised as the gold standard for determining the measure of a country’s economic growth since the Bretton Wood Conference held in 1944.

GDP = C + I + G + X – M

Where:

• C = Consumption
• I = Investment
• G = Government Spending
• X = Total Exports
• M = Total Imports

Net Exports

(X-M) in the above equation represents net exports. It is the difference between total imports and exports. A positive net exports figure indicates a trade surplus that means the country is net exporter. Whereas a negative net exports figure indicates a trade deficit which reflects that the country is net importer.

• Subsidies: A country can reduce its manufacturing cost by providing subsidies to domestic businesses. This will bring down the price of goods and make it more competitive in international market.
• Trade Agreements: Trade agreements are treaties in which a country promises to engage in fewer trade protections with another country or multiple other countries to engage in more trade. This results in less tariff, paper works and checks and make trade smooth which results in export boost.

How to Reduce Imports

• Taxes: A country can reduce imports by increasing import taxes on goods imported in the country. This makes the imported product less competitive in the market and protects domestic manufacturing.
• Quotas: A country can introduce quotas to restricts the quantity or volume of imported goods for a specific time period and can be modified over times.