Imports

Imports are goods and services that residents of one country buy from producers in another. Crude oil shipped into India, German machinery installed in a Bangladeshi factory, a Netflix subscription paid from Pakistan and a family holiday in Turkey paid for by a British household are all imports. They let consumers and companies buy things that cannot be made at home, or that are cheaper, better or different when made abroad.

Imports are the counterpart of exports, and the gap between them is the balance of trade. A country importing more than it exports runs a trade deficit, which must be financed through income from abroad, borrowing or the sale of assets, all recorded in the balance of payments. Import rules are set nationally but within commitments made at the World Trade Organization (WTO) and in trade agreements.

Picture a small town with one bakery and no orchard. The townspeople bake their own bread but buy apples from a farm in the next valley. They pay for the apples with money earned from selling bread to visitors. The apples are the town's imports: they make life better, but the town needs a steady income to keep buying them.

Countries face the same balance. Buying from abroad brings variety, lower prices and tools that raise productivity. But if a country keeps buying far more than it sells, it eventually runs short of the foreign money needed to pay, and has to borrow or cut back.

Customs records usually value imported goods "cost, insurance and freight" (CIF), the price delivered to the importing country's border, while the balance of payments values them "free on board" (FOB) and records freight and insurance separately as services. Services imports, such as tourism abroad, foreign consulting and software licences, are estimated from surveys and payment data and form part of invisible trade, while goods make up visible trade.

A useful gauge of reliance on foreign suppliers is the import penetration ratio, the share of domestic demand for a product met by imports:

• $M$ is imports of the product.
• $Q$ is domestic production.
• $X$ is exports of the product.

Worked example: a country produces 80 million pairs of shoes, exports 20 million and imports 40 million. Domestic demand is $80 - 20 + 40 = 100$ million pairs, so import penetration is $40 \div 100 \times 100 = 40\%$. A second widely watched measure is import cover, the number of months of imports a country's foreign exchange reserves could pay for.

In the expenditure formula for gross domestic product (GDP), imports carry a minus sign. This does not mean imports shrink the economy. Household, business and government spending already includes purchases of foreign goods, so imports are taken out again to leave only what was produced at home. A car imported for $30,000 adds $30,000 to consumption and subtracts $30,000 in imports, leaving GDP unchanged except for the local margin earned by the dealer, shipper and other domestic services.

Imports also matter for prices. When a currency weakens, imported goods and inputs become dearer, pushing up inflation as measured by the consumer price index (CPI). Countries that import most of their fuel and food are especially exposed to swings in the exchange rate and to world commodity prices.

Governments use several tools to tax, limit or screen imports:

• Tariffs. A tariff is a tax on imported goods, collected by customs and paid by the importer.
• Quantity limits. An import quota caps the volume allowed in, and a tariff-rate quota (TRQ) charges a low tariff up to a set amount and a higher one beyond it.
• Trade remedies. Anti-dumping and countervailing duties respond to goods sold below normal value or helped by a foreign subsidy.
• Origin rules. Rules of origin decide whether a product qualifies for lower duty under a trade agreement.
• Standards and licences. Health, safety and technical standards, import licensing and capital controls that ration foreign currency for importers.

Under WTO rules, members must treat imports from all other members equally, the most-favored-nation treatment (MFN) principle, except within free trade agreements and customs unions.

Economists in the free-trade tradition argue that imports raise living standards by lowering prices, widening choice and pushing domestic firms to become more efficient, and that cutting imports usually cuts exports too. Supporters of protectionism and industrial policy counter that sudden surges of imports can wipe out local industries and jobs, as research on US regions exposed to Chinese competition after 2001 documented, and that dependence on foreign suppliers is risky for strategic goods. Emerging economies facing balance-of-payments crises, Pakistan among them in recent years, have at times restricted imports to protect reserves, accepting shortages of inputs as the cost.

• UN Comtrade Database
• WTO Stats