As your business grows and develops you may begin to think about trading internationally and perhaps moving into new markets. When you trade across borders it will usually involve importing, exporting or both.
Here’s our guide to importing and exporting, why it’s so important, and how it can help your business and the wider economy to grow.
What are imports and exports?
Imports and exports are crucial to global trade. They help economies to grow and develop, businesses to expand and allow people to access the goods they need.
Imports are goods and services that are brought into a country as cost-effectively and quickly as possible for use in the domestic market. People and businesses may also import commodities and raw materials that are not freely available in their own country or domestic production cannot meet demand. A prime example of this is oil.
Some goods are cheaper to import than they are to manufacture domestically. Free trade agreements and tariff schedules are applied to certain goods. These are sometimes used to protect domestic industries or to encourage the importation of goods that can be more cheaply produced elsewhere.
Conversely, exports are goods which are shipped out of the country to foreign markets. If you manufacture goods there may come a time when you grow beyond your domestic market. Alternatively, some manufacturers discover the domestic market for what they offer isn’t big enough to make the business viable so they rely upon exports to increase their income.
Beginning to export goods is often a key moment in the development of a company, and one in which the support of an international forwarding company can be critical. They demystify the process, drive down costs and enable the company to concentrate on finding new markets and liaising with customers while the details of the exporting process are taken care of.
Why are imports and exports important?
Imports and exports are vital elements of international trade. They help national economies to grow while expanding the global market. Each country has a certain set of advantages, such as its natural resources and skill base. While some countries may be rich in natural resources such as precious metals and timber, others may experience shortages of these products.
Some countries have very high intellectual and creative capital. Other countries, with a developed education and research infrastructure, are able to specialise in technological innovation, and some have a strong skill base to specialise in manufacturing.
Importing and exporting has grown over the decades with international trade being essential to the global economy. It is now a much smoother and quicker process than it was fifty years ago and many countries rely much more on international trade rather than domestic production to meet their needs. Import and export allow consumers to have a broader range of goods available in the shops and can help to promote efficiencies and drive down costs.
If you’re a business that is looking to grow then exporting can be a means to do that. Why limit yourself to a domestic market of 60 million people when there’s a global population of over 7 billion?
Likewise, if you’re looking for particular goods and materials for your business, either to sell domestically or to use in making your products, international trade makes it easier to secure them.
Imported goods can often be cheaper than those made domestically. A good example of this in the UK is clothes, which are frequently manufactured in countries with cheaper labour costs. While this has both its advantages and disadvantages, it’s clear that importing and exporting goods underpins much of our way of life.
What are three main differences between imports and exports?
The main difference between imports and exports is that imports refer to goods that are brought into the country from an international market, and exports are those goods that leave the country for sale or use in an international market.
Secondly, while exports bring money into the national economy, imports mean money leaves the national economy.
A third key difference is that the aim of imports is to meet domestic demands, while that of exports is to increase international presence and grow global market share.
How do imports and exports affect the economy?
High levels of importing and exporting are good for the global economy. It means that international trade is flowing freely and companies and economies are able to grow, develop and expand. It can also create added competition, helping to drive down the cost of goods to the consumer and creating more pressure to innovate.
On a domestic level, a country’s importing and exporting activity influences its GDP, exchange rate and its level of inflation and interest rates. Importing and exporting are crucial to a whole range of economic indicators. Importing and exporting are also intrinsically linked to other aspects of the overall economy.
How do imports affect GDP?
While high levels of importing and exporting usually suggest an economy that is well-integrated into global trade, the balance between the two does impact GDP. At its simplest, when goods are imported into a country the money that goes to pay for these goods leaves the country and goes into the economy of the country where they were produced. A good example of this is China, which has grown its economy on the basis of producing goods that the advanced economies need at much lower prices.
If a country imports more than it exports it will run a trade deficit. The two countries with the biggest trade deficits are the USA and the UK, followed by Kenya and Brazil. Both the USA and the UK have been able to prosper despite high trade deficits because of strong trading links across the world and healthy domestic consumption. Consumers in both countries have benefitted from being able to access cheaper goods from overseas markets.
How do exports affect GDP?
When a country exports products it receives money from outside the country to grow its GDP. If a country exports more than it imports it will run a trade surplus. The countries with the largest trade surplus are Germany, Japan and China.
Germany and Japan have built their economy on a strong, high-quality manufacturing sector that exports valued goods around the world. They also show that it’s possible to run a trade surplus by competing on quality rather than price.
Countries with strong export economies are often able to produce more jobs and reinvest in certain industries by bringing in foreign capital. Any country that wants to develop will often seek out foreign investment as a means by which to grow its economy.
Which is better: export or import?
It’s generally believed that exporting is always preferable to importing because it brings money into the country and can give that country a certain advantage. Countries want to run a trade surplus wherever possible. For this reason, many countries will erect trade barriers following a policy of protectionism. This is often done to protect certain key industries from cheaper competition. This creates barriers to trade and, in some instances, can lead to a full-blown trade war.
It’s important to note that two of the G7 countries with the biggest economies run the biggest trade deficits, while two also run the largest trade surpluses. The rest of the G7 broadly has a balance between exports and imports.
While exports bring capital into an economy, high levels of imports can provide a broader range of goods and services at cheaper prices for consumers. This, in itself, can generate domestic economic activity, enabling people to set up and expand businesses that rely on imported goods and materials.
While having a strong export sector is crucial for a successful economy, there is a broader range of factors at play in determining a country’s GDP.
Importing and exporting with SSO International Forwarding
At SSO International Forwarding, we’re committed to making international trade easier. We understand the crucial role it plays in growing and supporting the global economy. We help UK businesses import the goods and materials they need and expand into international markets.
Our experienced team is always happy to answer any questions you might have about the import or export process. Contact us today to find out more about how we can help.