A net importer is a country that buys more goods from other countries than it sells to them over a given period of time. Countries produce goods based on the resources available in their region. Whenever a country cannot produce a particular good but still wants it, that country can buy it as an import from other countries that produce and sell that good.
Key Highlights
- A net importer purchases more goods from other countries than it sells abroad.
- By definition, a net importer runs a current account deficit in the aggregate.
- The United States, for example, has been a notable net importer for decades, with an import deficit of $678.7 billion in 2020.
Unveiling the Concept of a Net Importer
A net importer is a nation or territory whose value of imported goods and services surpasses that of its exported goods and services over a specific timeframe. A net importer, by definition, runs a current account deficit in the aggregate. However, it can also have individual deficits or surpluses with specific countries or territories depending on various factors such as the types of goods and services traded, competitiveness, exchange rates, government spending, trade barriers, and more.
In the U.S., the Commerce Department maintains monthly records on exports and imports across various categories. Some of the largest categories of goods that the U.S. currently imports include foods and beverages, oil, passenger cars, vehicle parts and accessories, pharmaceuticals, cell phones, and computers. It’s important to note that a country can be a net importer in one area while being a net exporter in another. For example, Japan is a net exporter of electronic devices but imports oil to meet its needs.
Example: The United States as a Net Importer
The United States, a consumer giant, has been a net importer for many years. Though it excels in leading export goods and services—including passenger planes, factory equipment, luxury automobiles, soybeans, movies, and banking services—Americans thrive on consumption, and international markets are eager to supply.
In 2020, U.S. imports exceeded exports by $678.7 billion. Total exports amounted to $2,131.9 billion, while imports reached $2,810.6 billion. Such significant trade deficits necessitate financing to maintain the balance of payments account. The primary method for financing the current account deficit is borrowing from other countries. This continuous sale of Treasury bonds to major trading partners has led to a measure of dependency on these creditors, potentially resulting in political or economic risks.
Conversely, countries like Saudi Arabia and Canada serve as examples of net exporters by selling their abundant oil resources to countries that cannot meet their energy demands domestically.
Weighing the Pros and Cons of Being a Net Importer
Being a net importer indicates a trade deficit, an economic condition with both benefits and drawbacks.
Advantages:
- Greater Consumption: Net importers can consume more than they produce, avoiding shortages of goods in the short term.
- Attract Foreign Investment: Trade deficits can signal a country as a highly-desirable destination for foreign investment. For instance, the U.S. dollar’s status as the world’s reserve currency creates a strong demand for U.S. dollars, driving foreigners to sell goods to American consumers to obtain dollars.
Disadvantages:
- Economic Dependency: Chronic trade deficits could lead to economic colonization, where foreign citizens acquire the capital to buy businesses, natural resources, and other assets within the net importing country. While this could lead to new investments, it can also result in foreign ownership of significant portions of domestic assets.
Related Terms: Net Exporter, Current Account Deficit, Trade Balance, Balance of Payments, Trade Barriers.
References
- U.S. Department of Commerce. “U.S. International Trade in Goods and Services, December 2020”.
- U.S. Department of Commerce, Bureau of Economic Analysis. “U.S. International Trade in Goods and Services December 2020, Exhibit 8. U.S. Imports of Goods by End-Use Category and Commodity”, Pages 24, 25.
