Why do Nations Export?
Why do Nations Export?

Exports are easier to explain than imports. At least since the beginning of the industrial era almost three centuries ago, countries exported goods and services because:

  1. Individuals and firms have been able to produce more goods and services than can be consumed at home. This prompted a search for foreign opportunities to sell the “excess” production;
  2. Individuals and firms have been able to sell goods or services to other countries at prices higher than the prices they can obtain domestically.

In today’s global economy, exporting serves somewhat different purposes for developing and industrial countries.

Developing Countries

Although the economies of developing countries are typically not as productive as the economies of industrial countries, developing countries nonetheless produce some goods and services in amounts they are unable to use or consume at home. This is called a production surplus.

For example, some developing countries produce vast quantities of agricultural products, like cocoa in Cote d’Ivoire and coffee in Latin America, which their own populations are not large enough to consume. Other developing countries produce quantities of industrially valuable minerals, like oil or iron ore, that their own economies are too small or not yet industrialized enough to use.

For many developing countries, exports also serve the purpose of earning foreign currency with which they can buy essential imports—foreign products that they are not able to manufacture, mine, or grow at home. Developing countries, in other words, sell exports, in part, so that they can import. Exporting goods and services can also further advance developing nations’ domestic economies.

Interconnectivity through global trade can be problematic, though.  For example, up until 2008, Japan had a booming export business with the United States.  When American consumers became unable to buy Japanese products, Japanese companies lost a large portion of their consumer base (Ryuhei, 2009). 

Industrial Countries

Exports are also more than just an outlet for “excess” production for industrial countries. Because their economies are more diverse, industrial countries tend to:

  1. Export a much wider variety of products than do developing countries; and
  2. Export a larger proportion of their total production of goods and services.

Export sales help maintain high employment levels for the work force of the United States and many other industrial countries.

In 2012, the United States had an estimated 4.926 million people holding jobs that were either directly or indirectly involved in the production of goods or services sold to other countries (Johnson & Rasmussen, 2013).   For the United States and other countries with highly productive, diverse economies, exports have become essential to economic stability and prosperity.

As the economic crisis started in 2007, many countries tightened their (economic) belts. Productive countries saw a decline in export sales and a heavy loss of jobs. In 2012 the goods and services deficit decreased $8.2 billion, with exports up $6 billion, or 3.2 percent (US Census, 2013). The reasons for this deficit include a record number of exports in 2012, a drop in the cost of imported oil, and a decrease in demand for imported goods. However, the trade deficit with China continued to widen as automobile imports outpaced exports (Schneider, 2013). The figures below illustrate the composition of world trade in goods and services in 2011.

 


Source: (WTO, 2013)

Manufactures include iron and steel, chemicals, office and telecom equipment, automobiles, textiles, and clothing.

Source: (WTO, 2013)

The graphs show that manufactured goods remain the dominant global export, as large economies like China rely on it as a source of investment. Fuels and mining products remain a large export as well, despite the move to domestic energy production in the U.S. which might cause this number to shrink. Finally, agriculture makes up the smallest amount of exported goods, with many developed countries relying on domestic crop production for the majority of their products. The U.S. recently concluded trade agreements on agricultural exports that could increase the amount of agricultural trade in the world market (USTR, 2013).

 

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