Q:

When are net exports negative?

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Quick Answer

Net exports are negative when a country imports a greater amount of goods than it exports. A county's net exports amount, often referred to as NX, is determined by subtracting the value of its imports from the value of its exports. If the result is a negative number, the country is importing, or purchasing, more foreign goods than it is exporting and selling.

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Full Answer

A country that is importing more goods than it is exporting is experiencing a trade deficit. More trade-based money is flowing out of the country than the amount flowing in. This is also referred to as an unfavorable balance of trade. One of the causes of a trade deficit is a country's domestic consumers preferring to purchase lesser-priced goods coming from outside the country, rather than purchase higher-priced domestically-produced goods. A trade deficit can also result when a country is unable to produce all of the goods or resources it requires, and it is then forced to rely upon foreign sources.

In a favorable balance of trade, a country exports more goods than it imports. This positive net export is called a trade surplus and it increases the country's gross domestic product, or GDP. Many countries rely upon tariffs, customs duties or other international trade devices to control the amount of imports. An import tariff, for example, is absorbed into the imported item's domestic sale price, and it raises the price so that a domestically-produced substitute has a better chance of competing with the import.

Net exports may be divided into separate categories by the type of product or commodity. Separate categories may also be assigned to distinguish between raw materials, finished goods and services. The overall net export figure is used most often as a means of determining a country's GDP.

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