Net Exports Formula: What It Is and How to Use It
By Indeed Editorial Team
Published 7 June 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Procurement and business professionals often analyse a variety of factors to source raw materials and determine if a new sales region can benefit a company. The net exports formula is a useful calculation that can help professionals better understand the financial health of a country, which can indicate how a company can benefit from completing business transactions in that country. Learning more about what this formula is and how to calculate it can help you provide accurate advice to a business.
In this article, we discuss what net exports are, review how to calculate this formula and explore two examples to help you better understand how to use this calculation.
What are net exports?
Net exports are the sum of a country's imports and exports to all other countries. Calculating the net exports provides a simple way to evaluate the economic health of a country by exploring its trade activities internationally. This calculation often evaluates specific periods, such as a month, quarter or year to provide insight into how the country performs economically. A higher net export valuation can reflect that a country is exporting more goods than importing goods. A lower net export total can reflect a higher level of imports into the nation. Common goods and services evaluated with this formula include:
Net exports formula
Here's the net exports formula:
Net exports = Total exported goods and services - total imported goods and services
Countries often list this information on government websites that focus on economics. When searching for this data, ensure you find reliable sources that attribute their research sources. Doing so can improve the accuracy of your calculations and lead to a more accurate analysis of these results.
How to use the net exports formula
Here are some steps you can follow to help you use the net exports formula:
1. Research total exported goods and services
Countries often list the total exported goods and services as a whole figure. They often list this figure as a monetary value for a set period, such as a month or quarter. When researching this information, ensure you verify the country's reporting period because they might automatically report on the previous month's or quarter's exports versus an entire year.
2. Discover total imported goods and services
Once you've found the total exported goods and services, you can typically find the imported goods and services in the same data location. Ensure when you're researching your data that the periods of the imported and exported goods are the same. Some countries have data from different years. For example, one country might have export data from 2020 and import data from 2021. To increase the accuracy of your results, ensure both data sets are from either 2020 or 2021.
3. Subtract findings
Once you've found the total exported and imported goods data, you can complete your calculation. Subtract the total imported goods and services from the total exported goods and services. The final result is the net exports for the country for a set period. This number may be positive, negative or zero.
4. Analyse results
The final result can provide detailed insight into a country's trade and economic health. A positive result can reflect that a country has more exports than imports, which is known as a trade surplus. This can help increase employment rates and economic growth in the country and can affect the valuation of its currency. A negative result can reflect that a country has more imports than exports, which is known as a trade deficit.
Influencing factors on net exports
There are many factors that can influence a country's net exports, like these:
Value of currency: The rate of exchange for a country's currency can influence net exports since that also influences how expensive it is to manufacture goods in that country. If a country has a lower relative currency value, it may have a higher net export value since the country can manufacture goods more cheaply and sell them for less.
Trade barriers: Trade barriers can also influence net exports and imports. Bans or tariffs can affect the availability of certain goods and the price of those goods, which in turn affects consumer purchasing trends.
Natural resources: Nations with larger quantities of valuable natural resources can have greater net exports, since other countries may want to purchase both the raw materials and any products that country can make with those materials. Companies with fewer natural resources might experience higher imports than exports to meet the demands of their country.
Agriculture**:** If a country doesn't have the land or water to grow its own food and other products, it may need to import more of those items. If a country can grow its own plant resources, this may also increase the country's exports, as other countries may need those raw materials to support their own region.
Manufacturing: A country's ability to manufacture its own goods can affect its net exports and imports, since it may need to import more items if it can't manufacture them. A healthy manufacturing sector can boost a country's net exports since manufacturing can add value to raw materials.
Scale: The size of a country's companies may influence its exports, since larger companies may take advantage of economies of scale to export items at a lower cost than smaller companies, who may prefer to sell products domestically. The size of a country can also affect the availability of raw materials and the number of agricultural regions.
Advantages of calculating net exports
Here are some advantages to consider when calculating net exports:
net exports are useful when calculating the gross domestic product of other countries
the result of the net export calculation helps professionals understand a country's financial health
net exports are one indicator of a country's savings rate, which can provide insight into future exchange rates
Disadvantages of calculating net exports
Understanding the disadvantages of calculating net exports can help you learn about the limitations of this formula. This can also help provide direction for other items to research to better understand the health of a country's market. Here are some disadvantages to consider:
a trade surplus or deficit doesn't always reflect a country's financial health
trade deficits don't always lessen a country's economic value
Net export examples
Here are some examples you can review to help you better understand how to apply this formula:
Trade deficit example
Here's an example that reflects a trade deficit:
An international trade specialist with Tennent Manufacturing wants to determine where to purchase the raw materials for their company. The specialist decides to analyse the net exports for a country that also can provide the raw material needed for the organisation. The total exports for the country equal $3,548,574,000 and the total imports equal $3,951,578,000. The specialist subtracts the imports from the exports or 3,548,574,000-3,951,578,000, which equals -403,004,000. This negative number reflects a trade deficit, so the trade specialist decides to analyse other countries to find a location that can supply the raw materials needed for production.
Trade surplus example
Here's an example reflecting a trade surplus:
A country reports its total value of exports of goods and services for the month of January as $1,500,000. It also reports a total value of imports of goods and services as $1,000,000. Using the net exports formula, you want to understand the economic health of a country because the company in which you're employed wants to expand its sales market to include this country.
To find the net exports, you subtract $1,000,000 from $1,500,000, or 1,500,000-1,000,000. The result of this calculation is $500,000. This reflects a trade surplus, which can help the company make a more educated decision regarding expanding their sales region to include the new country.
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