Imports / exports - American business
Imports are the goods produced in another country (foreign goods) that are brought into a home country (e.g., the United States) for sale. Exports are the goods produced by the home country (domestic goods) that are shipped to another country for sale. Thus one country’s exports are another country’s imports. Balance of trade occurs when a country’s imports equal its exports. A simplified explanation of why trade takes place is because the foreign country can produce a certain good cheaper than the importing country. The law of comparative advantage, however, states that the item will be made in a more expensive location as long as its relative cost of production is cheaper than in the importing country. For example, suppose a country could manufacture computers very efficiently and profitably but could less efficiently and profitably produce automobiles. If it did produce automobiles, though, they would be cheaper than those produced by its neighbor country. Yet in spite of the higher cost, it imports automobiles from its neighbors instead of moving workers and capital from its more profitable computer industry
to produce domestic automobiles. As demonstrated by the decline in the value of the U.S. dollar in 2003, imports and exports are sensitive to changes in currency
exchange rates. With the decline in the dollar, foreign car imports declined and sales U.S. products abroad expanded. U.S. tourism
abroad dropped significantly while foreign visitors to the United States grew. In many countries the value of exports and imports can equal or exceed a country’s GROSS DOMESTIC PRODUCT
(GDP). While trade represents approximately 6 percent of GDP in the United States, export income and competition from imported products contribute to the growth in the economy. Countries often attempt to maintain a positive trade balance in order to create and expand domestic jobs and income. The United States has run a significant (in 2003, more than $400 billion) current account deficit (the sum of merchandise, services, investment income, and unilateral transfers) since 1980. The U.S. imports significantly more merchandise than it exports but exports more services than it imports. The United States perennially has a trade surplus in certain categories, including agricultural and technology products, and a trade deficit in energy and textile products. The major trading partners of the United States are Canada, Mexico, and Japan, with China becoming an increasingly important source of imports. Canada has long been the United States’s leading trading partner, but trade with Mexico grew with the passage of the NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA) in 1994.