What is an import?
- Imports are goods or services from another country brought to your own for sale.
- They allow countries access to scarce, nonexistent, or low-quality assets or services.
- Taxes imposed on import goods and services can affect the prices of stocks.
When you get goods or services from another country and then bring them to your own, you are doing an importation. Therefore, imports are goods and services taken from across your national border into your own. A person or company that receives these goods is an “importer,” while the one shipping out the goods or services to another country is an “exporter.”
Examples of import
Imagine that you are an orange juice supplier whose farm ran out of oranges due to insects, drought, or disease. Don’t worry–you have the option to import oranges from another country such as Brazil. This scenario is an example of an import that involves the exchange of goods or products for money.
Aside from goods, you can also import services from other countries. Willy Wonka from the movie Charlie and the Chocolate Factory is a great example. Willy Wonka is the owner of a candy factory whose local employees kept stealing his secret recipes. Because of this, he shut down the factory and traveled far from home until he reached the Loompaland, home to the Oompa Loompas who eventually became his loyal factory workers. The Oompa Loompas worked in exchange for cocoa beans—which the Oompa Loompas value so much more than anything. In this scenario, Willy Wonka is importing the labor force of the Oompa Loompas in exchange for cocoa beans.
What causes an import?
Importing is essential to a country because it allows them to supply scarce, nonexistent, or low-quality goods or services. They are most likely to introduce products or services that their domestic industries cannot produce as cheaply or efficiently.
Some conditions push for importation to be the practical choice for a country. These conditions include a shortage of specific goods or services or the lack of them. Some nations have no oranges, so they turn to other countries who have lots of them and make a trade deal. Others look for better and skilled services that are scarce in their own country like what Willy Wonka.
What are the rules for importing?
Imports are bound by rules and regulations that protect the importing and exporting parties from exploitation.
Import quotas authorized by the government limit the goods and services that may enter the country. You are allowed to take some oranges in Brazil from those who are willing to sell, but you are not allowed to exhaust and bring all of their oranges to your country.
Both parties are also bound to follow trade agreements signed by their respective countries and can impose a tax on the exchanged goods or services.
How do importing rules affect investing?
Taxes imposed on import goods and services can affect the prices of stocks. In the orange juice example, the orange juice baron started importing all raw materials which are oranges from Brazil. The import taxes will determine who will benefit or suffer the most from this trade. If the orange baron’s country has cheap import tax, then it will be beneficial for him to continue importing oranges from Brazil. Lower taxes will mean higher profit. It will disadvantage local orange growers because the cheaper fruits of Brazil will outdo their product. Thus, the stock price of the local orange fruit grower’s company will go down.
However, if the import taxes are high, the practical thing to do is wait for local orange growers to harvest their fruits because it is more expensive to buy them outside the country.
U.S. President Donald Trump increased import taxes for cheap steel from China. Some of the most significant beneficiaries of this move are American steel companies that are very sensitive to the effects of cheap imports. The U.S. import about one-third of the 100 million tons of steel and 90% of the 5.5 million tons of aluminum. The country needs more “protective measures” like the proposed 25% tax on steel and 10% tax on aluminum according to him.
While the American Iron and Steel Association backs the president in this proposal, the Aluminum Association stated that they cannot produce all the needed aluminum of its industries. An importation in this scenario is inevitable. Even if the local price of aluminum is cheaper than imported ones, it could not produce this particular type of resource on its own, so they will eventually have to source from another country.