Post by Trade Coach on Jan 26, 2021 18:18:14 GMT 1
Exports are the goods and services produced in one country and purchased by residents of another country. It doesn't matter what the good or service is. It doesn't matter how it is sent. It can be shipped, sent by email, or carried in personal luggage on a plane. If it is produced domestically and sold to someone in a foreign country, it is an export.
Exports are one component of international trade. The other component is imports. They are the goods and services bought by a country's residents that are produced in a foreign country. Combined, they make up a country's trade balance. When the country exports more than it imports, it has a trade surplus. When it imports more than it exports, it has a trade deficit.
As an example, the United States imported $1.68 trillion in goods between January and August 2018. During that same period, it exported $1.12 trillion in goods. This created a deficit of $565.6 billion.
Countries comparative advantage
Countries have comparative advantages in the commodities they have a natural ability to produce. For example, Nigeria is blessed with the right climate to grow cocoa, Kenya, Jamaica, and Colombia have the right climate to grow coffee. That gives their industries an edge in exporting coffee.
India's population is its comparative advantage. Its workers speak English, which gives them an edge as affordable call center workers. China has a similar advantage in manufacturing due to its lower standard of living. Its workers can live on lower wages than people in developed countries.
Most countries want to increase their exports. Their companies want to sell more. If they've sold all they can to their own country's population, then they want to sell overseas as well. The more they export, the greater their competitive advantage. They gain expertise in producing the goods and services. They also gain knowledge about how to sell to foreign markets.
Governments encourage exports. Exports increase jobs, bring in higher wages, and raise the standard of living for residents. As such, people become happier and more likely to support their national leaders.
Exports also increase the foreign exchange reserves held in the nation's central bank. Foreigners pay for exports either in their own currency or the U.S. dollar. A country with large reserves can use it to manage their own currency's value. They have enough foreign currency to flood the market with their own currency. That lowers the cost of their exports in other countries.
Countries also use currency reserves to manage liquidity. That means they can better control inflation, which is too much money chasing too few goods. To control inflation, they use the foreign currency to purchase their own currency. That decreases the money supply, making the local currency worth more.
Exports are one component of international trade. The other component is imports. They are the goods and services bought by a country's residents that are produced in a foreign country. Combined, they make up a country's trade balance. When the country exports more than it imports, it has a trade surplus. When it imports more than it exports, it has a trade deficit.
As an example, the United States imported $1.68 trillion in goods between January and August 2018. During that same period, it exported $1.12 trillion in goods. This created a deficit of $565.6 billion.
Countries comparative advantage
Countries have comparative advantages in the commodities they have a natural ability to produce. For example, Nigeria is blessed with the right climate to grow cocoa, Kenya, Jamaica, and Colombia have the right climate to grow coffee. That gives their industries an edge in exporting coffee.
India's population is its comparative advantage. Its workers speak English, which gives them an edge as affordable call center workers. China has a similar advantage in manufacturing due to its lower standard of living. Its workers can live on lower wages than people in developed countries.
Most countries want to increase their exports. Their companies want to sell more. If they've sold all they can to their own country's population, then they want to sell overseas as well. The more they export, the greater their competitive advantage. They gain expertise in producing the goods and services. They also gain knowledge about how to sell to foreign markets.
Governments encourage exports. Exports increase jobs, bring in higher wages, and raise the standard of living for residents. As such, people become happier and more likely to support their national leaders.
Exports also increase the foreign exchange reserves held in the nation's central bank. Foreigners pay for exports either in their own currency or the U.S. dollar. A country with large reserves can use it to manage their own currency's value. They have enough foreign currency to flood the market with their own currency. That lowers the cost of their exports in other countries.
Countries also use currency reserves to manage liquidity. That means they can better control inflation, which is too much money chasing too few goods. To control inflation, they use the foreign currency to purchase their own currency. That decreases the money supply, making the local currency worth more.
