What are net exports?
Net exports are a measure of a nation’s total trade. The formula for net exports is simple: the value of a country’s total export goods and services minus the value of all goods and services it imports is equal to its net exports.
A nation that has positive net exports has a trade surplus, while negative net exports mean that the nation has a trade deficit.
A country’s net exports can also be called its trade balance.
Understanding net exports
Some economists believe that maintaining a constant trade deficit harms a country’s economy by inducing domestic producers to move abroad, creating pressure to devalue the national currency, and forcing rates to fall interest.
Key points to remember
- A country’s net exports are the value of its total exports minus the value of its total imports.
- A positive net export figure indicates a trade surplus, while a negative figure indicates a trade deficit.
- A low exchange rate makes a nation’s exports more price competitive.
However, the United States has both the world’s largest deficit and its largest gross domestic product (GDP). This suggests that a trade deficit is not inevitably harmful. The free market maintains trade imbalances through exchange rate adjustments.
If a country’s currency is weak, its exports are more competitive on international markets, which encourages positive net exports. If a country has a strong currency, its exports are more expensive and consumers will abandon them for cheaper local products, which can lead to negative net exports.
Exports include all the goods and other services that a country sends to the rest of the world, including goods, freight, transportation, tourism, communications and financial services.
Examples of net export figures
According to World Bank data, the most prolific exporter as a percentage of gross domestic product in 2020 was Luxembourg with 224.8%. If you do not remember buying products made in Luxembourg recently, know that its main trading partners are Germany, France and Belgium and export many products, including steel and machinery, diamonds, chemicals and food.
The other main exporting countries in 2020 were:
- Ireland at 122.3%
- Malta 144.6%
- Singapore at 176.4
- Vietnam 95.4%
The countries that exported the least as a percentage of GDP in 2020 are Ethiopia at 8.4%, Pakistan at 8.5%, Sudan at 10.2% and Nepal at 8.8%.
To see examples of how nations calculate their net exports, we must first see the World Bank’s import data for the same year.
Net export deficits and surpluses
For example, Irish imports reached 89.2% as a percentage of GDP in 2020, while Luxembourg imports totaled 190.7%. Subtracting these figures from the countries total exports, we find that Ireland had net exports of 33.1% in 2020, while Luxembourg had net exports of 34.1%.
Pakistan posted imports totaling 19.4% of GDP in 2020. As its exports represented only 8.5% of GDP, the country’s net exports were -10.9% as a percentage of GDP. Pakistan had a trade imbalance.
For 2020, the latest available year, the United States recorded net exports totaling 12.1% of GDP, while it had net imports of 15% of GDP. So yes, the United States had a 2.9% trade deficit.