Net Importer

What is a Net Importer?

A country is termed a net importer when it imports more goods than it exports.

A country’s domestic demand sometimes cannot be fully satisfied by domestic production, the main reasons for which are:

• Weak domestic production
• Seasonal irregularities in manufacturing activity
• Domestic or political unrest in a country. e.g., Civil War
• Inflation in consumer essential commodities
• Scarcity of resources for production
• Lack of capital and investments. etc.

A country then imports goods and services from other countries that have the ability to provide those goods to the world.

A growing economy cannot produce everything itself and needs to import materials and machines from time to time.

The lack of imports shows weak domestic demand in a nation which is an alarming situation for that country.

In contrast, huge import bills put a strain on both the current account deficit and the currency of the importing nation.

Imports are good for a country if they are kept under control. Imports attract more indirect taxes than what is imposed on domestically produced goods, so it is a good source of income for governments.

Also, the import of luxury items does not promote income inequality. In other words, it at least does not increase it, as luxury items attract hefty taxes and customs duties.

Import can be of various things, some countries are not so blessed in oil reserves, and some are not so blessed in mineral deposits. These energy and material-deficient countries then import their requirements from a country that has sufficient of all this stuff.

What is a Trade Deficit?

A Trade Deficit or TD refers to the amount by which a country loses its foreign exchange every financial year of trade it makes. In simple words, the trade deficit is just the difference between the Imports and Exports of a nation.

The trade deficit is an unwanted situation for nations, mainly that are growing and developing nations. 

Trade deficit requires financing, a TD can prove very detrimental to an economy if not financed properly. Trade Deficits prolonged overtime can force governments to borrow debt. This can put the budget into a severe liquidity crunch.

The US has been a net importer itself for decades now; in 2020, it had a TD of more than $600 Billion. The number is huge! The US is a consumption-driven economy and the marginal propensity to consume is very high in the US.

The US has no problem financing that deficit because it is the biggest economy in the world, plus it can print dollars with relatively more ease than the rest of the world.

Now if we see the case of Venezuela, the country is on the brink of collapse since the US placed an oil embargo on it and imposed sanctions on trade with Venezuela. It was a net exporter thanks to its oil reserves, but now it has a trade deficit percentage of over 48%.

Generally, countries like Saudi Arabia and Canada have a trade surplus or a TS. A TS is a situation when a nation exports more valuable goods to the rest of the world than it imports from other nations.

This is a very favorable situation both for the economy and the currency of that nation. It increases the Foreign Exchange Reserves of a country which can be used in times of uncertainty.

Who are the biggest Net Importers in the world?

This is the data pertaining to the FY of 2020; according to this data, countries like Germany, Japan, China, Russia, South Korea, and Spain are the world's largest net exporters where Germany’s net exports being $274.8 Billion, followed by Japan’s $184.5 Billion and China’s $141.3 Billion.

Here is the list of the largest Net Importers-

1. United States of America - $498.4 Billion
2. United Kingdom - $106.9 Billion
3. Brazil - $49.5 Billion
4. Canada - $34.2 Billion
5. India - $26.9 Billion
6. France - $18.5 Billion

We can clearly see, according to this data, that the US is the world’s largest net importer, with its trade deficit being almost close to $500 Billion. All the other nations, like the UK, Brazil, India, and France, have a TD mainly because of their oil imports.

These countries do not have oil reserves in large quantities as Russia and Saudi Arabia have, so these countries have to spend a lot of foreign exchange on oil trade, which is done in USD.

Countries like the US and the UK are consumer-centric consumption-driven economies which justify their huge bills of import deficit.

Advantages of being a Net Exporting country instead of a Net Importing country

There are several advantages of being a net exporting nation but almost no significant benefits of importing more goods and services than what one is exporting.

Imports put a strain on trade deficits and affect the value of the currency in free markets. It also makes goods expensive because of those high customs and taxes. This can increase inflation in an economy.

Apart from not having these downsides, there are several benefits of being a net exporter. These are:

• Foreign Exchange Reserves get replenished and increase over time which can be used in times of emergency and contingencies. It can also be used to fund an unanticipated war-like situation.

• If a country declines its dependency on other nations for goods and services at times of global shortage or war with the goods supplying the country, it can prove devastating for the economy that is importing all those items.

• It increases the soft power of the exporting country and gives that country a superior diplomatic stance in one-to-one negotiations.

• The quality of life of the people increases drastically as they are earning money in terms of foreign exchange which increases their GDP per capita.

• Exports increase the logistics and transport infrastructure along with many other utilities, the benefits of which can be used by the common people as well.

• It promotes cultural exchange between countries as exports include the traveling of locals to other nations for customs and regulatory works. It also increases tourism between the countries indirectly.

• It gives immense power to the exporting country if the exports are concerned with consumer essentials or other essentials like power and energy supplies. This can be used by the country to terrorize and blackmail the dependent country.

• By exporting huge quantities of goods and being a crucial player in the global supply chain, a country cannot be easily cornered by other countries or even be sanctioned very easily by global groups like the United Nations. 

We have seen this in the case of the Russia-Ukraine war of 2022.

Who are the biggest exporters in the world?

As they are linked directly and indirectly to economic growth, countries in the list are no surprise. This data has been taken from the one provided by the World Bank for the year 2022, and it includes both goods and services exports of a country.

Also, seeing the list one can easily attribute that countries with high exports are comparatively richer than countries without any significant exports. No country in the world can sustain growth with only domestic demand, not even countries with huge populations like India and China.

However, the size of a country is an irrelevant topic of discussion here, as countries like Singapore and territories like Hong Kong make up this list. They have more exports than big countries with huge populations like Pakistan or Brazil.

High goods outflow from a country also improves the standard of living, and macroeconomic indicators like employment rate, minimum wage rate, and other social issues like labor safety and union forces also get better attention.

Now keeping all this in mind, let’s know who are the biggest exporters currently in the world.

1. People’s Republic of China ( Mainland China ) - USD 3.332 Trillion
2. The United States - USD 2.134 Trillion
3. Germany - USD 1.673 Trillion
4. Japan - USD 793 Billion
5. United Kingdom - USD 777 Billion
6. France - USD 759 Billion
7. The Netherlands - USD 711 Billion
8. India - USD 676 Billion
9. Hong Kong - USD 612 Billion
10. South Korea - USD 606 Billion

Researched and authored by Aditya Murarka | LinkedIn

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• International Monetary Fund (IMF)
• Market
• Oligopoly
• Trade Wars
• Utility Theory