Import and exports—the staples of international trade—may appear like terms that have little bearing on everyday life for the average person, but they can, in fact, exert a thoughtful influence on both the consumer and the economy.
In today’s global economy, consumers are used to seeing products and produce from every angle of the world in their local malls and stores. These overseas products—or imports—provide more choices to consumers and help them manage worried household budgets.
But too many imports coming into a country in relation to exports—which are products shipped from the country to a foreign destination—can distort a nation’s balance of trade and devalue its currency. The value of a currency, in turn, is one of the major determinants of a nation’s economic performance.
How Imports And Exports Affect You.
Imports symbolize an outflow of funds from a country as they are payments made by local companies (the importers) to abroad entities (the exporters). A high level of imports indicates robust domestic demand and a growing economy. It’s even better if these imports are mainly productive assets, such as machinery and equipment, since they will improve efficiency over the long run.
A healthy economy is one where both exports and imports are rising. This typically indicates economic power and a sustainable trade surplus or shortage.
If exports are growing adequately, but imports have declined significantly, it may indicate that the rest of the world is in better profile than the domestic economy. On the other hand, if exports fall sharply but imports surge, this may indicate that the domestic economy is faring better than overseas markets.
The U.S. trade deficit, for instance, tends to get worse when the economy is growing strongly. However, the country’s constant trade deficit has not impeded it from continuing to be one of the most productive nations in the world.
That said, a rising level of imports and a growing trade deficit do have a harmful effect on one key economic variable—the level of the domestic currency against foreign currencies, or the exchange rate.