Unit 19

Import and export

In recent decade, the world has seen an international trade boom unlike any other in history. Most large corporations earn a great portion of their revenues from their overseas ventures. And many nations owe a large share of their gross national product to the output of firms based beyond their borders.

In the age when many business people are thinking global­ly, it is just as important to understand the working of the world economy as it is to understand our national economy. Fortunate­ly, the same concepts of supply and demand, deficit and sur­plus also apply to international business. They just manifest themselves differently.

There are two sides to every trade relationship: buying and selling goods. In international trade, those who buy are import­ing goods or services from foreign sources; those who sell are ex­porting products to customers abroad.

When Honduras exports bananas to Switzerland, they can use the money they earn to import Swiss chocolate – or to pay for Kuwait oil or a vacation in Hawaii. The basic idea of interna­tional trade and investment is simple: each country produces goods or services that can be either consumed at home or ex­ported to other countries.

The main difference between domestic trade and interna­tional trade is the use of foreign currencies to pay for the goods and services crossing international borders. Although global trade is often added up in US dollars, the trading itself involves various currencies. Japanese videocassette recorder is paid for in German marks in Berlin, and German cars are paid for in US dol­lars in Boston. Indian tea, Brazilian coffee, and American films are sold around the world in currencies as diverse as Turkish liras and Mexican pesos.

Whenever a country imports or exports goods and services, there is a resulting flow of funds: money returns to the exporting nation, and money flows out of the importing nation. Trade and investment is a two-way street, and with a minimum of trade barriers, international trade and investment usually makes every­one better off.

In an interlinked global economy, consumers are given the opportunity to buy the best products at the best prices. By open­ing up markets, a government allows its citizens to produce and export those things they are best at and to import the rest, choosing from whatever the world has to offer.

Some trade barriers will always exist as long as any two countries have different sets of law. However, when a country decides to protect its economy by erecting artificial trade bar­riers, the result is often damaging to everyone, including those people whose barriers were meant to protect.

The Great Depression of the 1930s, for example, spread around the world when the United States decided to erect trade barriers to protect local products. As other countries retaliated, trade plumped, jobs were lost, and the world entered a long period of economic decline.

The balance of trade (the import-export balance) is deter­mined by the relationship between import and export. In years when we export more than we import, we have a favourable bal­ance of trade. People in other countries buy more from us than we buy from them, and money flows into our economy. In years, when imports exceed exports, the balance of trade is infavorable. Money flows out of our country into the pockets of our foreign suppliers.

The balance of payment is the broadest indicator of interna­tional trade, because it measures the total flow of money into the country over a period of time, usually one year. The balance of pay­ments encompasses not only the balance of trade, but also payments of foreign aid by governments and direct investment in assets.

The total values of exports and imports are not necessarily equal to each other. The difference between those two values is the net amount that a country lends to or borrows from the rest of the world. The consequence of importing more goods and serv­ices than a country exports is that it's a net borrower from – not a net lender to – the rest of the world.