Imports vs. Exports: Definitions and Differences
Importing and exporting represent essential concepts within the flow of international trade. These activities support companies and countries by enabling them to sell and receive goods and services across the world. If you work within the logistics field, understanding these activities and how they differ could provide beneficial insights that you can use throughout your career. In this article, we define importing and exporting and discuss the key differences between them.
What are imports?
Imports are goods or services that entities purchase from other countries, often via shipment, mail or freight aircraft. Imports often represent goods that a country does not produce or cannot produce affordably or efficiently. An importer can be an individual or company. These entities may import goods to support their business or sell to consumers in their home country. For example, a food manufacturer may import ingredients grown in another country to create its products. Or a car dealership in America may specialize in selling luxury cars imported from Japan.
What are exports?
Exports are services or goods a country manufactures and ships to other countries for sale. Exporting can bring profits to a country or money into a country, helping stimulate its economic growth. Because imports may represent goods that another country cannot make, the exporting country often has a comparative advantage. The exporters may produce the goods at a lower opportunity or financial cost. For example, Colombia's climate supports the growth of coffee beans more than some other countries. Because it is easier for Colombia to grow these beans, it can produce and sell more of them to those countries.
Related: What Is Comparative Advantage?
Key differences between imports and exports
While both serve essential roles for economies and international trade, importing and exporting have several differences. The differences between these activities include:
The primary objective of importing is to fulfill the demand for services and goods that are not available in a country. As mentioned, the importing country may not have the resources or capabilities to produce particular goods efficiently or at all. Businesses may also import goods or services from foreign markets if they cannot obtain them easily or affordably at home. The primary objective of exporting is to generate income or government revenue by selling domestic goods to foreign markets. Entities may also use exporting to boost their international presence and market share or sell a surplus of goods.
The steps involved with importing and exporting goods and services also differ. The importing process includes the following:
Performing a trade inquiry: The importing entity gathers information about the entities that export the desired goods or services, including delivery rates and terms and conditions.
Obtaining import licenses: Depending on the goods and services, the importer may need to apply for a license to import and sell them in their country.
Placing orders: Once the importer decides who to purchase the goods from, they place an order with details such as quantity, quality and price.
Determining payments: When working with foreign entities, the importer may need to consider foreign exchange rates and get the appropriate currency or a letter of credit to make their payments.
Receiving shipment notification: The importer typically receives a document alerting them that their shipment is on its way, often including an invoice and details about the shipping vessel, delivery schedule and the goods included in the shipment.
Going through customs: The importer also typically receives a notification when the goods arrive, though these items first must undergo the customs process to ensure compliance with domestic laws and regulations before their release.
Meanwhile, the steps for exporting goods and services to foreign entities include:
Responding to inquiries: Exporters often respond to potential importers' requests for information about their delivery terms and goods, including the quality, price and appearance of products.
Receiving and accepting orders: After responding to potential importers' inquiries, the exporter may receive an order for the goods or services they offer that they can agree to fulfill.
Obtaining export licenses: Like importers, exporters may need a license to gain permission to dispatch and sell particular goods to foreign entities.
Producing and packing goods: The exporter fulfills customers' requests by producing and packaging the ordered goods, then inspecting the shipment to ensure its quality.
Receiving customs clearance: The exported goods must receive approval from the customs agency to verify paperwork and any necessary fees.
Preparing invoices: Once the exporter ships the order, they create and submit an invoice to the importer that details the quantity and price of the shipment.
A country's balance of trade can demonstrate the overall health of its economy. You can use the following formula to determine a country's balance of trade:
Balance of trade = total value of exports - total value of imports
When a country exports more goods and services than it imports, it creates a trade surplus. A trade surplus can represent a healthy economy, as it demonstrates a positive flow of currency from foreign entities. Meanwhile, a country that imports more than it exports represents a trade deficit. With a trade deficit, more money flows out of the country to foreign markets rather than into it. As a result, the country may need to borrow money to pay for additional imports and cover its deficit.
Impact on GDP
The gross domestic product (GDP) of a country represents the total monetary value of all the goods and services it produces within a specified period. When a country exports products, it sells them to governments, businesses or consumers in another country. Those exports provide income to the exporting country, thus increasing its GDP. When a country imports products, it purchases them from foreign manufacturers and entities. The money spent elsewhere leaves the importing country's economy, thus potentially decreasing its GDP. The following formula demonstrates how total imports and exports can affect a country's GDP:
GDP = consumer spending + government spending + investment spending + (total exports - total imports)
For example, if a country's total exports equal $200 billion and its total imports equal $150 billion, it has net exports of $50 billion. This amount adds to the country's GDP. Meanwhile, if a country's total exports equal $200 billion and total imports equal $250 billion, it has net exports of negative $50 billion. This amount can reduce the country's GDP during that period.
Companies sometimes import goods or services to lower costs related to manufacturing or operations. For example, a car manufacturer may import parts from another country to build its cars. The process of buying parts may be more cost-effective than creating them itself. When importing goods, businesses can order large quantities of items and receive them at a discount. After saving these costs, the business can then sell the items at a price that boosts their profits.
When companies focus on exporting goods, it can help them increase their sales and overall sales potential. Exporting companies look beyond local markets and find opportunities to expand their reach internationally. This expansion helps companies boost their global presence and connect with even more customers who may want to purchase their products. Exporting also encourages domestic production, which can lead to more jobs in those industries.
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