What happens when exports are less than imports?
President Trump hates the US trade deficit, and he has made eliminating or reducing large bilateral trade deficits the centerpiece of his trade policies. He thinks that deficits mean the United States is "losing" in global markets because it is buying more goods and services from overseas than it is selling to foreign markets. This interpretation is
misguided, but there are reasons to be concerned about the aggregate trade deficit. The main worry is that sustained deficits over an extended period will rack up debt that eventually must be repaid. The United States
runs a trade deficit, not because of bad trade deals, but because its citizens spend more than they earn and finance the difference with foreign credit. In 2016, the households, firms, and government in the United States earned $18.6 trillion but spent $19.1 trillion on goods and services, resulting in a disparity of $500 billion. Since the deficit is about production and consumption, the tools that will be most effective in reducing it are those that impact how much US
citizens, businesses, and governments save. Three ways to reduce the trade deficit are: If the administration is serious about reducing the trade deficit, there are ways to do it. Trade policy, however, is not on the list. Although it seems intuitive that trade policy should be the appropriate instrument for a trade deficit—just as fiscal policy is the right tool for a fiscal deficit—the economics do not work that way. Higher tariffs on one country or product divert trade to other countries or products, distorting consumption but leaving the trade balance roughly unchanged.
Higher tariffs on all countries will reduce imports, but they will also reduce exports, again leaving the trade balance roughly unchanged. The reason is that import tariffs reduce the demand for foreign currency and the dollar strengthens, thus the tariffs reduce both imports and exports and distort consumption and production. Overall, higher tariffs can be expected to reduce trade and income, but with a negligible impact on the trade deficit. More FromRelated TopicsDefinitions and BasicsBalance of Payments, from the Concise Encyclopedia of Economics
Imports, from AmosWEB’s Economics Gloss*arama.
Exports, from AmosWEB’s Economics Gloss*arama.
Balance of Trade, from AmosWEB’s Economics Gloss*arama.
In the News and ExamplesPopular myth: Aren’t imports bad? Aren’t exports good? Isn’t a trade deficit a bad thing? The very word “deficit” sounds bad! Economic reality: An excess of imports over exports merely sends dollar bills overseas while bringing real goods and services into the country for immediate use. If foreigners want to hold onto those dollars, while we get to put their goods to immediate use benefiting our consumers and creating new investment for our industries, then we get an even better deal! Prohibiting trade severely limits what you can accomplish. Don Boudreaux on the Economics of “Buy Local”. Podcast at EconTalk, April 16, 2007.
The Buy-Locally-Owned Fallacy, by Karen Selick. November 3, 2008.
Photos of the 100-Mile Suit. Buying local example. At Wired, March 31, 2007.
Don Boudreaux on Globalization and Trade Deficits. Podcast at EconTalk, January 21, 2008.
The Balance of Trade, by Frédéric Bastiat. Chapter 6 in Economic Sophisms, first published 1845 in France.
Why not just buy American? Why not just by British? Foreign Trade, or The Wedding Gown, by Jane Haldimand Marcet in John Hopkins’s Notions on Political Economy. 1831.
A Little History: Primary Sources and ReferencesMercantilism, from the Concise Encyclopedia of Economics
Exports and Imports, from Lalor’s Cyclopedia of Political Science
Balance of Trade, from Lalor’s Cyclopedia of Political Science
Mercantile System, from Lalor’s Cyclopedia of Political Science
Advanced ResourcesRelated TopicsBarriers to Trade What happens when import is more than export?If a country exports a greater value than it imports, it has a trade surplus or positive trade balance, and conversely, if a country imports a greater value than it exports, it has a trade deficit or negative trade balance. As of 2016, about 60 out of 200 countries have a trade surplus.
What is it called when exports is less than imports?If exports exceed imports then the country has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country or area has a trade deficit and its trade balance is said to be negative.
What happens to GDP if export is lower than import?When exports are lower than imports, net exports are negative. If a nation exports, say, $100 billion dollars worth of goods and imports $80 billion, it has net exports of $20 billion. That amount gets added to the country's GDP.
What happens if a country has more exports than imports?A nation has a trade surplus if its exports are greater than its imports; if imports are greater than exports, the nation has a trade deficit.
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