Net Exports: Definition, Examples, Formula, and Calculation

What Are Net Exports?

Net exports are a measure of a nation's total trade. The formula for net exports is a simple one: The value of a nation's total export goods and services minus the value of all the goods and services it imports equals its net exports.

A nation that has positive net exports enjoys a trade surplus, while negative net exports indicate that the nation has a trade deficit. A nation's net exports are thus a component of its overall balance of trade.

Understanding Net Exports

A country that enjoys net exports brings in more money from goods and services sold overseas than it spends on importing goods and services.

Exports include all the goods and other services a country sends to the rest of the world, including merchandise, freight, transportation, tourism, communication, and financial services.

Companies export products and services for a variety of reasons. Exports can increase sales and profits if the goods create new markets or expand existing ones. At best, they present an opportunity to capture significant global market share.

Companies that export also spread business risk by diversifying into multiple markets. Exporting into foreign markets also reduces per-unit costs by expanding operations to meet increased demand.

Finally, companies that export to foreign markets gain new knowledge and experience that may lead to the discovery of new technologies and marketing practices, and insights into foreign competitors.

The Currency Factor

If a nation's currency is weak in relation to other currencies, the goods available for export become more competitive in international markets as their prices are relatively less expensive to the retail customer. That encourages positive net exports.

If a country's currency is strong, its exports are more expensive. Consumers will pass them up for cheaper local products, which can lead to negative net exports.

Formula and Calculation of Net Exports

The formula for determining a nation's net export number is a simple one:

Net Exports = Value of total exports - Value of total imports

The details are more complicated. The U.S. Census Bureau, for example, tracks the nation's exports and imports of industrial supplies and materials; capital goods; consumer goods; food; automotives and automotive parts, and more.

It also tracks the numbers by trading partner. The U.S. has its biggest trade deficit, not surprisingly, with China, and that deficit increased by $31.6 billion in 2022, to $382.9 billion.

Net Exporter vs. Net Importer

Countries produce goods based on the resources and skilled labor capacity that they have available. When a country cannot produce a particular product efficiently but still wants or needs it, its businesses can buy it from other countries that produce and export it.

A net exporter is a country that sells more goods to foreign countries than it brings in from abroad. Saudi Arabia and Canada are examples of net exporting countries. Both have an abundance of oil, which they sell to businesses in other countries that need it. A net exporter, by definition, runs a current account surplus in aggregate.

A net importer, by contrast, is a country or territory whose value of imported goods and services is higher than its exported goods and services over a given period of time. By definition, a net importer runs a current account deficit. The United States is a net importer, purchasing many of its consumer products and raw materials from countries like China and India because those nations can produce them more cheaply.

A country may run either deficits or surpluses with individual countries or territories depending on the types of goods and services that it buys and sells, the competitiveness of these goods and services, current exchange rates, levels of government spending, and trade barriers.

A country can be a net exporter of some categories of goods while being a net importer of other products. For example, Japan is a net exporter of electronic devices, but it must import oil from other countries to meet its needs.

The World's Most Prolific Exporters

According to World Bank data, the most prolific exporter by the percentage of gross domestic product (GDP) in 2021, for which the latest data is available, was Luxembourg at 211.4%. (If you don't recall buying any products made in Luxembourg lately, you should know that its main trading partners are Germany, France, and Belgium, and it exports many products including steel and machinery, diamonds, chemicals, and food).

Other leading export countries in recent years include:

• Hong Kong at 203.5%
• Singapore at 184.8%
• Ireland at 134.4%
• Vietnam 93.3%
• United Arab Emirates (UAE) 95.9%

The countries that exported the least as a share of GDP in 2020 included Burundi at 5%, Sudan at 2.3%, Guam at 3%, and Nepal at 5.2%.

Examples of Countries With Net Export Deficits and Surpluses

To find examples of how nations calculate net exports, we first have to see the World Bank data on the imports side for the same year. For example, Ireland's imports came in at 95% as a percentage of GDP in 2021, while Luxembourg's imports totaled 176.7%. By subtracting those figures from the exports of these nations, we find that Ireland had net exports of 39.4% in 2019, while Luxembourg enjoyed net exports of 34.7%.

For 2021, the latest year in the World Bank's report, the U.S. had net exports totaling 10.9% of GDP while it had net imports of 14.6% of GDP. The U.S. had a trade deficit of -3.7% of GDP. (Separately, U.S. Census Bureau figures set the U.S. deficit at 3.7% in 2021 and 3.8% in 2022.)

Factors Influencing Net Exports

For a country to be a net exporter, it must have products or raw materials that overseas buyers desire and the capacity to deliver them at a cost that is low enough to entice foreign consumers to import them rather than buying a domestic alternative.

A country exports when it has a comparative advantage in a product or an ability to produce a particular product or service at a lower opportunity cost than its trading partners.

Natural Advantages

Some countries enjoy an absolute advantage in certain products, particularly in raw materials or natural resources. These will be in high demand as exports.

Saudi Arabia has a natural advantage in its oil reserves. The U.S. is rich in coal and timber, among other resources. China is rich in rare earth minerals.

Currency Values

A country's currency exchange rate also plays an important role. If a currency loses value relative to its potential trading partners, its companies can produce and sell those goods abroad relatively cheaply. The reverse is true if the nation's currency value rises.

Because of this, a country's government or central bank of an exporting country may employ monetary policy tools if the currency starts to rise in global markets.

Trade Barriers

A third important factor is the government's export tax policies. Trade barriers such as quotas, tariffs, and other taxes are designed to stifle international trade and encourage domestic production.

A trade barrier is any government regulation that is designed to protect domestic products from foreign competition or artificially stimulate exports of particular domestic products.

The most common foreign trade barriers are government policies that restrict, prevent, or impede the international exchange of goods and services. The greater the trade barriers, both at home and internationally, the harder it is to export.

Net Exports and GDP

The net exports number is a key component of a nation's GDP. It either adds to GDP, if it is a positive number, or decreases its GDP, if it is a negative number. A high GDP, or at least a GDP that is growing from year to year, is seen as an indicator of a nation's economic health. A negative net exports number detracts from that number.

That does not by any means end the debate over whether a trade deficit is a bad mark against a nation's economy.

One way to look at a trade deficit is to see it as an indication that a nation's citizens can consume more than they produce. They have the money to buy the goods and services that they cannot produce themselves.

On the other side, there is a political hazard ahead for nations running big deficits. The nation is sending its money abroad and leaving itself vulnerable to economic colonization.

The Bottom Line

The net exports number is a component of a nation's GDP. If a nation has a trade surplus, it adds to the GDP. If it has a trade deficit, this reduces GDP.

This number is also referred to as "the balance of trade." The term can be taken literally, as it suggests the health of the nation's economy as a whole. The nation produces and exports the goods and services that it can supply to the world on a competitive basis. It consumes some of the goods and services it produces and imports those it cannot produce. Some of both are critically important but the appropriate mix is harder to establish.