As we all know and are very well aware of the fact that trading is one of the most valuable assets of the world economy. The process of selling and buying products and services on a bigger scale is called trading.
But when we trade products, services, and commodities in the international market, the term importing and exporting is used for selling and buying services and goods.
The process of buying services or products from foreign countries for domestic consumers is called Global importing.
Whereas the process of selling domestic services and products to foreign consumers is called Global Exporting.
The global export and import of services and products facilitate consumers and buyers from all around the globe to buy foreign or international products in their domestic markets.
International trade provides a wide range of products and services for the domestic consumer to choose from.
The international exports and imports can cause a pattern shift in the market economy of every country. If the imports of services and goods of a country exceed its exports, then there are chances of the country to lose its trade balance.
The economic background of a country is called a trade deficit. Trade deficit occurs when the value of imported goods of a country is greater than the value of goods it exported.
Trade deficit will negatively affect the market of a country. Whereas, if a country exports more than it imports, then the net exports would be positive. This economic condition is known as trade surplus.
The trade deficit will lead a country to deprive the value of its currency, which is often known as devaluation. Devaluation is one of the biggest and most significant factors used for measuring the economic performance of a country.
A trade surplus of an economy can offer opportunities like employment as it requires more products to export. Resulting and creating demand for workers in the market as more people are needed to carry out the work, and to keep the factories running.
EFFECT ON EXCHANGE RATE
The relation between a country’s export- imports and its exchange rate are complex as there is a constant feedback loop between global trade and the way a country's currency is being valued.
The exchange rate has an effect on the trade deficit or surplus, which in turn affects the exchange rate of a country.
An increase in the level of imports leads to the outflow of funds. Imports of machinery and equipment indicate that the economy of the domestic country is growing as it increases the productivity of a country.
If a country imports services and goods more than it exports, it would make a negative impression on the exchange rate and on the value of the domestic currency.
Decreased domestic currency rate makes imports more expensive and provokes the level of export. Whereas, a higher exchange rate slows down exports and makes imports cheaper.
There are possibilities of countries trying to devalue their currencies to stimulate and increase their international exports to gain an advantage over global trade. This practice is known as competitive devaluation.
A competitive devaluation is a man-made economic condition that refers to the strategic and comprehensive devaluation of the domestic currency to increase the volume of its exports.
EFFECT ON INFLATION
Inflation stands for the increase in the general price level of services and commodities in an economy over a time period. The import-export level of a country is highly influenced by inflation.
The money supply in the economy will increase when the interest rates are low. Higher inflation means a higher inflation rate and higher chances of having an increase in the level of imports as it encourages domestic people to become more competitive to purchase imported services and products.
If the price of services and goods are high, then the government will increase the interest rates to get a hold on the money supply in the economy to bring down the increasing prices of the services and goods.
Consumer spending decreases when the inflation is high as it increases the price of services and goods in the market.
Likewise, high inflation results in a decrease in imports, as consumers don’t have money to purchase international goods anymore. They would instead depend on domestic goods.
Consequently, we can state that the high inflation of a country decreases the exports of another country.
When the inflation is high, which indicates that the consumer spending is low on international products but adequately good on domestic products, resulting in the increasing demand for domestic products.
ECONOMIC REPORTS
The best source of information data to track imports-exports of a country is the merchandise trade balance report. These reports are released consistently by most of the major countries on a monthly basis.
These reports contain analytical researched data full of information including details on the largest product categories for exports and imports, the biggest trading partners, and trends over time.
CONCLUSION
Import and export play an important role in strengthening the economy of a country.
In the above article, I’ve provided you with some of the fundamentals of the impact of import and export on the economy and its major facts. If you have any doubt regarding import-export trade, you can connect with us at info@eximtradedata.com as we provide solutions for your import-export business.
