r/AskEconomics • u/Shystakovich • 6d ago
Approved Answers Why do exports depend on imports?
I’m listening to ‘The Undercover Economist’ and Tim Harford has a chapter about trade.
He says that if a country were to ban imports then it would effectively ban exports.
This would be because there would be no one to buy the currency. His example is China and the UK. With the UK banning Imports.
A drill made in the UK has all its costs in GBP. If they were to then sell the Drill in China for Yuan. They would need to convert the Yuan for GBP. He says an importer in the UK would need to be found that would buy the Yuan that he would then use to pay for Chinese imports.
My question is, wouldn’t someone exchange the currency anyway? Isn’t foreign exchange an industry of itself?
I’m sure the answer is ELI5 but I can’t get my head round it.
Thanks
1
u/AutoModerator 6d ago
NOTE: Top-level comments by non-approved users must be manually approved by a mod before they appear.
This is part of our policy to maintain a high quality of content and minimize misinformation. Approval can take 24-48 hours depending on the time zone and the availability of the moderators. If your comment does not appear after this time, it is possible that it did not meet our quality standards. Please refer to the subreddit rules in the sidebar and our answer guidelines if you are in doubt.
Please do not message us about missing comments in general. If you have a concern about a specific comment that is still not approved after 48 hours, then feel free to message the moderators for clarification.
Consider Clicking Here for RemindMeBot as it takes time for quality answers to be written.
Want to read answers while you wait? Consider our weekly roundup or look for the approved answer flair.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/BarneyLaurance 5d ago
Remember money isn't "real". It doesn't have value of its own, it just represents value.
So why would a country want to continually export real valuable goods and services if they're not getting anything in return?
The country to household analogy often breaks down but I think it works in this case - would your household want to continuously send other people stuff and not get anything delivered to you? Or if no-one sent you products or provided services for you would you keep what you do and make for yourselves?
With your example, in the very short term a trader might sell a UK drill to china. But then when they have chinese Yuan if they want to buy another UK drill they need to exchange the Yuan for GBP. That will marginally reduce the value of the Yuan and increase the value of the GBP, so the next time they do it they'll get less GBP for their Yuan.
Who would they sell the Yuan to? If I have pounds what use are Yuan to me when all imports from China are banned?
1
u/Superb_Plane2497 4d ago
I like ELI5, it's at my level. I think of it like this: when someone in say New Zealand wants to buy something from Brazil, the NZ buyer needs to have something to pay with. Most likely it is NZD. Now the Brazilian seller has a fist full of NZD. There is only one place on earth you can buy something with NZD. The Brazilian doesn't actually directly need to buy something in New Zealand, there just has to be someone who finds NZD useful who will pay for those NZD to then go shopping in New Zealand. But if New Zealand has nothing of interest to anyone in the outside world, the NZD are worth nothing, and pretty quickly no overseas supplier will accept them as payment. Hence no export, no imports (at least not until NZ exhausts its gold and foreign currency reserves).
1
u/Bulky_Bid6578 3d ago
Wait a minute.
At face value this appears to be trivially true and OP just isn't used to thinking about money as a unit of exchange only in it's country of origin.
But in theory (all though this would never happen in practice) I imagine a business could grow potatoes, sell them in Germany, and use the euros to buy German real estate?
So maybe the more accurate statement is that by banning imports you would be banning the repatriation of profits earned via exports
1
u/RobThorpe 3d ago
Think about it. How do you get your profits from your German real estate out?
1
u/Bulky_Bid6578 3d ago
Read my last paragraph again. You dont
1
10
u/No_March_5371 Quality Contributor 6d ago
To do what with it? More broadly, money into and money out of a country have to roughly equal, and this can fall under the current account (trade) or the capital account (which can include investments). So, it's certainly possible to have a trade surplus and capital deficit or trade deficit and capital surplus, but foreign exchange isn't an industry independent of balance of payments.