To calculate net exports, you simply add up all the goods and services that are exported to other countries from your home country and subtract all the goods and services that are imported from other countries into your country over a specific period of time, typically a year.
What Is Net Exports?
Net exports is the amount by which the total exports of a country exceeds its total imports. Both exports and imports include physical goods, such as food, clothes, and automobiles, and services, like business consulting, travel, telemarketing, and government and military contracts. If a country’s total exports are greater than the total value of goods and services that it imports, net exports will be a positive number. If a country’s total exports are less than the value of the goods and services it imports, net exports will be a negative number.
Net exports is a component in the calculation of the gross domestic product (GDP) of a country. GDP is the total value of everything produced by the people and companies within the country, regardless of whether they are citizens of the country or foreign entities operating within the boundaries of the country. GDP is calculated as the sum of personal consumption expenditures, business investment, government spending, and net exports. Analysts look at the growth (or lack thereof) in GDP as a sign of the economic health of a country, and net exports play a role in this to one degree or another. If net exports is a negative number, it reduces GDP; if it is a positive number, it increases GDP. In the United States, net exports is a relatively small component of GDP, averaging around only 2% of the country’s gross domestic product.
The makeup of a country’s economy and the types of businesses located within a country define whether the country will be export-oriented (tend to have positive net exports) or import-oriented (tend to have negative net exports). This, in turn, determines the degree to which a change in net exports will affect the country’s economy. If a country is more export-oriented, a decrease in exports will have a greater adverse impact on its economy that it would in a country for which the balance of trade is more neutral. On the other hand, if a country is more import-oriented, an increase in exports can provide a greater boost to its economy than it would in a country that was more neutral in its export/import balance.
There are a number of factors that can affect a country’s net exports, including national disasters. For example, wild fires destroy trees. If one of a country’s major exports is lumber or products produced from lumber, a season of wild fires can cause its net exports number to drop sharply.
Two major economic factors that affect a country’s net exports are changes in the economic conditions of a country’s primary trading partners and the exchange rates between a country’s currency and its major trading partners. For example, one of the biggest export destinations of Turkey’s goods is Germany. If Germany’s economy were to falter, it would impact Turkey’s exports.
Exchange rates reflect the supply and demand for a currency. When a country’s currency strengthens relative to the currency of other countries, it makes the goods and services exported by that country more expensive for the purchasers in those other countries. This results in a decrease in demand for that country’s exports. Additionally, when a country’s currency strengthens relative to the currency of other countries, it makes imported goods cheaper for the consumers of that country. Thus, the demand for goods imported from other countries increases. This can be a double whammy on the net exports of a country since total exports will decrease while total imports increase.
Net Exports Formula
Net Exportst = Total Value of Exportst – Total Value of Importst
where “t” is a specific time frame, typically one year.
How to Calculate Net Exports of Goods and Services
As the formula above indicates, the calculation of net exports is a simple subtraction problem. To illustrate, the table below provides the 2016 data on the total exports and total imports of 25 different countries, along with the net exports calculation. For comparison purposes, all numbers are provided in billions of U.S. dollars.
|Net Exports By Country|
|Country||Total Exports (billions)||Total Imports (billions)||Net Exports (billions)||Top Export Destination(s)|
|China||$2,060.0||$1,320.0||$740.0||U.S., Hong Kong|
|Singapore||$315.0||$259.0||$56.0||China, Hong Kong, Malaysia|
|Italy||$455.0||$401.0||$54.0||Germany, France, U.S.|
|Thailand||$231.0||$190.0||$41.0||U.S., China, Japan|
|Switzerland||$302.0||$268.0||$34.0||Germany, U.S., U.K.|
|Saudi Arabia||$182.0||$167.0||$15.0||China, U.S. India, South Korea|
|Argentina||$56.9||$54.7||$2.2||Brazil, U.S., China|
|South Africa||$69.1||$73.7||-$4.6||China, U.S. Germany|
|United Kingdom||$404.0||$625.0||-$221.0||U.S., Germany|
|United States||$1,400.0||$2,210.0||-$810.0||Canada, Mexico|
Based on this data, the five biggest net exporters of the countries listed are China, Singapore, Italy, Ireland, and the Netherlands, while the five biggest net importers of the countries listed are the United States, the United Kingdom, India, France, and Turkey.