What is import trade?
Imports are goods or services purchased in one country/region and produced in another country/region. Imports and exports are part of international trade. If the value of a country's imports exceeds the value of its exports, the country has a negative trade balance, also known as a trade deficit.
Key Points
- imports are goods or services that are produced abroad and purchased in the country.
- Imported goods or services are attractive when domestic industries cannot produce similar goods and services cheaply or efficiently.
- Free trade agreements and tariff schedules usually specify which goods and materials are less expensive to import.
- Economists and policy analysts disagree about the positive and negative effects of imports.
The Basics of Import Trade
Countries are most likely to import goods or services that their domestic industries cannot produce as efficiently or cheaply as those of exporters. Countries are also likely to import raw materials or commodities that are not available within their borders. For example, many countries import oil because they cannot produce it domestically or do not produce enough to meet demand.
Free trade agreements and tariff schedules often specify which goods and materials are less expensive to import. With globalization and the growing popularity of free trade agreements between the United States and other countries and trade blocs, U.S. imports of goods and services have increased from $580.14 billion in 1989 to $3.1 trillion in 2019.
Free trade agreements and reliance on imports from countries with cheaper labor often seem to be the primary cause of manufacturing job losses in importing countries. Free trade opens up the ability to import goods and materials from lower-cost production areas and reduces reliance on domestic goods. the impact on manufacturing employment was evident between 2000 and 2007 and was further exacerbated by the Great Recession and the slow recovery that followed.
Divergence on import trade
Economists and policy analysts disagree about the positive and negative effects of import trade. Some critics argue that continued reliance on import trade means less demand for domestically manufactured products, which discourages entrepreneurship and business development. Supporters say import trade improves quality of life by providing consumers with more choice and cheaper goods; the availability of these cheap goods also helps prevent rampant inflation.
Real-life examples of import trade
As of November 2020, the United States' largest trading partners include China, Canada, Mexico, Japan and Germany. Two of these countries participated in the North American Free Trade Agreement (NAFTA), which was implemented in 1994 and created one of the world's largest free trade areas at the time. With very few exceptions, this allowed for the free movement of goods and materials between the United States, Canada and Mexico.
It is widely believed that NAFTA reduced auto parts and vehicle manufacturing in the U.S. and Canada, with Mexico being the primary beneficiary of the industry agreement. Labor costs in Mexico are much cheaper than in the U.S. or Canada, prompting automakers to relocate plants "south of the border.
In 2018, the U.S., Canada and Mexico agreed to replace NAFTA with the U.S.-Mexico-Canada Agreement (USMCA). Its highlights include.
- requires that 75 percent of auto parts be made in one of the three member countries
- sets a minimum wage for auto workers and expands union protections and sanctions for labor law violations
- Expanding intellectual property rights and banning tariffs on digital music and literature
- Giving U.S. farmers access to Canada's dairy market