Net Importer Definition
Net Importer refers to a nation whose value of imported products and services is higher than the value of its exported products and services for a longer time frame or in other words, it buys more from other countries and sells comparatively lesser.
How to Calculate Net Imports?
Net imports can be calculated by determining the total value of exports and imports done by a country and then by simply comparing the results.
Net Imports can be calculated in the following steps:
- One must calculate the total amount of imports done by a country for a particular time period.
- The total amount of exports must be calculated for the same country and for the same period of time.
- The total value of exports obtained must be deducted from the total value of imports and the results obtained shall depict the net imports for the country for that particular time frame.
Net Imports = Total Value of Imports – Total Value of Exports
Example of Net Importer
Net imports can be calculated by comparing the total value of the imported goods and services over a particular period of time to the total value of similar products and services exported during that period of time.
Net Imports = Total Amount of Imported Goods and Services – Total Amount of Exported Goods and Services
For example, the United States sold $190 billion of cosmetic products to other countries in the year 2018, and it purchased $560 billion of cosmetic products from other countries in the same year. Therefore, using the above formula for the calculation of net imports, it is ascertained that the United States net cosmetic products imports for the year 2018 are:
Calculation of Net Imports will be –
Net Imports = $560 billion – $190 billion
= $370 billion
Why is the United States a Net Importer?
The U.S. has remained a net importer for multiple decades. In the year 2017, the United States imported $2.16 Trillion which made it the largest importer globally for that year. The aforesaid country exported $1.25 Trillion which ultimately resulted in the negative trade balance for the same. Therefore, the negative trade balance for the United States stood at $910 billion. The import of the U.S. has increased annually at an average rate of 0.04 percent in the past five years. The net imports executed by the United States in the year 2012 were $2.14 Trillion which grew up to $2.16 Trillion in the year 2017. The latest imports.
A country that is more into importing and less into exporting for a designated period of time will often be regarded as a net importer. Being a net importer may not necessarily be an unfortunate thing. This can also indicate a country’s self-sufficiency. Apart from self-sufficiency, this can also indicate a country’s future rates, savings rate, etc.
- It can upgrade the standard of living for the country and its citizens.
- With imports, a country can gain access to advanced technologies and develop good quality goods and services.
- With imports, countries can even source goods and services at a cheaper rate by gaining access to various products and services from different countries.
- Companies all over the globe are opting to import its products and services since it helps them expand their profit marginsProfit MarginsProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. .
- Better opportunities to establish fruitful relationships with foreign exporters.
- Imports also allow the participants to come across better growth opportunities and create better future prospects.
Being an importer is not always a negative thing; buy operating a chronic and fast-growing trade deficitTrade DeficitWhen the total sum of goods or services that a country imports from other countries is higher than the total sum of goods or services that a country exports to other countries, this is referred to as a trade deficit, which is the opposite of the balance of trade theory. for a prolonged period of time might create a lot of issues.
- Net imports can cause unemployment rates to go higher in the participating countries since the focus will be shifted more on purchasing products and services from other countries.
- The importing of goods can cause foreign exchange losses to countries.
- Net imports might lead to inflation since the local manufacturing concerns will be impacted as there will be more and more purchases from other countries.
- Focus on imports can even cause domestic manufacturers a loss of business since foreign goods are acting as a substitute for domestic goods. This may ultimately collapse the overall domestic industry.
- Higher reliance on imports can even disturb the economy of a nation.
- Imports even lower foreign currency deposits which further weaken the domestic currencyWeaken The Domestic CurrencyCurrency depreciation is the fall in a country’s currency exchange value compared to other currencies in a floating rate system based on trade imports and exports. For example, an increase in demand for foreign products results in more imports, resulting in foreign currency investing, resulting in domestic currency depreciation. and leads to inflation.
- Imports can even cause in the conflict of local values as a result of greater inclination on social values.
- Imports can also lead to erosion of local markets and national economies as a result of a trade deficit.
The net importer is a country that has participated in more imports and less on exports for a particular period of time. Net imports can be calculated by reducing the total value of exports from the total value of imports. It has its own set of advantages and disadvantages for the participating countries, their citizens and economies as a whole.
It can allow countries to gain access to better technologies, better opportunities, create quality goods and services, etc and at the same time can also bring enhancement in unemployment, trade deficit, conflict of domestic values, disturbed economy, etc.
This has been a guide to a net importer and its definition. Here we discuss the formula to calculate net import along with an example, advantages and disadvantages. You can more about finance from the following articles –