Philosophy of Importation and Exportation

Rongqing Dai

Abstract

In an era where imports and exports have become essential pillars of national economies around the world, a lack of good understanding of the philosophy behind could make it difficult to truly grasp the economic development status of a country, a region, or the whole world, and thus difficult to see through the dazzling goings to gain profound insight into the geopolitical influence exerted by international trade and the technological and economic advancement of nations. This article offers an introductory discussion on the philosophy behind imports and exports and their impact upon the economy.

Keywords: Import, Export, Rigid Need, Inflation, Wealth

1. Introduction

Trading has been an integral part of human civilization since ancient times. People not only exchange or buy and sell various forms of commodities within their own communities, but also trade across country borders, and even embark on thousands of miles of trade routes such as the Silk Road and the Spice Road. It not only created wealth for shrewd and lucky businessmen, but also opened up cultural exchanges by bringing exotic treasures from different regions.

After the industrial revolution, especially during the peace times, import and export gradually became a necessity for all countries. Due to various complex political, economic and historical reasons, the world can be roughly divided into industrialized countries, non-industrial countries with rich raw materials, and developing countries between developed industrial countries and underdeveloped countries with rich raw materials, which are in transition from underdeveloped countries to industrial countries.

Nevertheless, the import and export of all countries still retain some traditional basic functions of importation and exportation before industrialization: 1) earning foreign exchange; 2) obtaining goods, technologies and services that the country lacks but needs from other countries; 3) earning profits from the domestic market.

As the competition for industrial technology and market power in the world becomes increasingly fierce, many raw materials, semi-finished products after raw material processing, and finished components such as chips have become the strategic reserve objects of various countries. For many industrial countries, these materials may become rigid needs for imports. For underdeveloped countries, many basic production and life needs have become rigid need for imports.

As long as the use of force or political pressure to obtain other countries' resources in an extremely unequal way is not allowed, if a country wants to obtain the materials (raw materials, equipment, technology, services, luxury goods, etc.) it needs from other countries, it must work hard to promote exports to other countries to earn foreign exchange or barter in bilateral trade or even store the other country's currency - this is the rigid export demand faced by countries that need to obtain materials from other countries.

Of course, there are some alternatives to exporting to earn foreign exchange, e.g. to attract foreign capital to bring foreign exchange to the country for investment or to promote tourism in the international market. These can also be regarded as a disguised export in which domestic resources are used to earn for foreign exchange.

2. The Benefit of Exporting for Revitalizing Domestic Economy

The rigid demand for exports determined by the rigid demand for imports mentioned earlier is easier to understand. However, for a developing country in transition, even if there is no huge rigid demand for imported scarce raw materials and technical equipment and services, its enterprises might still need to accumulate wealth through exports which is difficult to achieve with the same level of wealth accumulation when the country stays closed to the outside world.

This situation often occurs in the early stages of development of a transitional country. At that stage, the country could accumulate a large amount of foreign exchange in a short period of time if the amount of exports could be far greater than the amount of imports. The effect of this process of export is not just a simple process of foreign exchange accumulation, but actually supports a large number of domestic enterprises and revitalizes the domestic market economy. Therefore, exports in the early stages of development could have the dual important functions of accumulating foreign exchange and revitalizing the domestic economy. At the same time, the country can also import domestically needed technical equipment and some raw materials to a limited extent.

For example, suppose an enterprise produces a product, sells it to the international market to earn foreign exchange, and then takes the foreign exchange received to the exchange agent or banks to convert it into the local currency. The exchanged currency is then used as wages to workers and as company profits after the cost is deducted. In this entire process, for the export company, the international market is just a temporary link in the turnover process of converting products into the local currency; for the entire country, if there is no other enterprise that uses local currency to buy the foreign exchange back and purchase imported materials, the international market is just an additional efficiency-enhancing link in the capital turnover to support domestic enterprises.

2.1. The resource and environmental cost of using export to revitalize domestic economy

However, using the international market as an additional efficiency link to help domestic capital turnover comes at a certain cost. Assume country A’s domestic production is basically self-sufficient, so it only exports and does not import (imports are zero) every year. Under this extreme situation, the international market becomes purely an additional efficiency-enhancing link in regulating capital turnover. If it takes $500 worth of items (food etc) to sustain the life of a worker, then the country's reliance on exports to support the workers of an enterprise is equivalent (to exaggerate) to something like this: first produce items worth $1,000 nationwide, sell $500 worth of items to the international market, and then use the foreign exchange obtained to convert them into local currency (ignoring the profit component here). Give a worker $500, and then he uses the $500 to buy the other $500 worth of daily necessities in that $1000 worth commodities from the domestic market. Therefore, this kind of turnover method is the same as using purely domestic raw materials for production while increases domestic resource and environmental consumption (because of using the resources to produce $1,000 worth items to meet the demand for $500 worth items). Of course, “zero imports” is just an extreme hypothetical situation. But in the real world, if a country's overall exports are much greater than its overall imports, the appeal's analysis of zero imports will apply to the excess of exports over imports.

2.1. Discussion

There are several reasons why a country could still have a rigid need for exports even if it does not have a rigid need for imports: 1) The products of some domestic companies are only in demand overseas; 2) Although there is also domestic demand for related products, buyers and sellers cannot find a counterpart due to poor domestic information channels or a lack of funds from buyers; 3) It is inconvenient or even risky for the government to buy products from the sellers and transfer them to buyers without going through marketing channels while the government could help sellers to sell products to the international market and help facilitate the conversion of foreign exchange earned by companies into domestic currency and save the foreign exchange for future use through some fiscal means.

3. Inflation Caused by Import and Export

Under certain conditions (e.g. appropriate political and economic environment), import and export may also bring benign inflation to a country that is beneficial to the accumulation of national wealth ^[[1]].

Assume that during certain period of time country A is an exportation-oriented country, and country B is an importation-oriented country, and at the beginning, the wealth of an average citizen of country A is much less than the wealth of an average citizen of country B, and thus an average citizen of country A would normally not consider to consume goods or services from country B, while an average citizen of country B would take the consumption of goods or services from country A, or a trip to country A, as a trivial matter.

Now assume manufacturers of type T products in country A make a huge amount of profit through their exportations to country B, and thus they start to spend a large amount of money in their own country A to buy goods and services, which would cause a sudden imbalance between the demand and supply of the relevant goods and services (in a general sense, including unmovable property). Accordingly, those who provide the goods and services in country A to those profitable manufacturers of type T products would increase their prices for the goods and services that they provide, while hiring more local people and ordering more raw materials to produce the relevant goods and services, which would further boost the prices in the market for much more types of goods and services. During this process, the income of the involved workers would also be increased accordingly because of the increase of the need for relevant skills, experiences, or simply handy labor in the market, the enhanced ability to compensate or the will to reward the good work of employees by the employers because of the improved business performances, as well as the demand of compensation increase by the employees and the government because of the increased living cost.

If the abovementioned process could last for a long period, the overall market prices of domestic supply of goods and services in country A would steadily increase, and by definition, inflation has occurred in country A because of the huge profit of the manufacturers of type T products from their exportations to country B.

Assume that through a period of time, the manufacturers of type T products in country A made 1 billion dollars from country B, and it would be equivalent to 10 billion units of their own currency; however, because of the inflation, when many of those people need to spend most of the money, the buying power of that amount of 10 billion units of their own currency might have become only half of its original worth. Obviously, because of the inflation, the actual domestic wealth accumulation of the manufacturers of type T products in country A could be much less than what they might have thought of when they originally gained the profit through their exportations (e.g. A person initially expected to purchase 100 acres of land, and but then found that he could only afford for 50 acres in the end).

However, from the stand point of view of the buyers in country B, those people from country A did gain 1 billion dollars from them. Then where did the rest of the wealth that was moved from country B to country A go? The answer is simple: it is redistributed to other people within country A, and the mechanism of fulfilling this redistribution is the (infamous) inflation. As the result of the inflation, not only would the general prices of goods and services of country A become closer to those of country B (or even supersede the prices in country B for some items), but also could come a rapid growth of general income level of ordinary citizens of country A.

In order to better understand this, let’s examine two ideal scenarios. First, in an extremely ideal situation, when the surface value of every single unit of the currency of country A magically doubles instantly everywhere in the system, including all the prices and all the numbers on every balance sheet (no matter in banks or in private households or any social entities or any single person’s financial records), then we won’t see any effect of inflation, as long as the exchange rates on the international market also adjust proportionally at the same time. Therefore, we might conclude that it is not the change of the surface value of the total amount of banknotes in the market, but the uneven change of the purchasing power within the economic system, that would cause the noticeable problem of inflation. Second, if those who boost the total buying power of the society by generating their own wealth increase would voluntarily share their wealth increase with the rest of the society, then the increased total buying power would not be reduced because of this voluntary sharing (suppose people would always quickly get into contractual cooperation whenever there is the need of more capital than they could offer by individuals); in the meantime, a more rationally distribution of the total national wealth among business owners and skilled workers of versatile backgrounds could facilitate a more balanced nationwide economic development, which could not only help to bring forth a quick nationwide economic growth, but also to boost the wealth of average citizens in comparison to other countries, as long as their currency does not over devaluate in the international market (i.e. the exchange rate does not change too much).

Accordingly, if the market could be fine-tuned in such a way that the wealth increase in a specific group of the society would be quickly and rationally redistributed to the whole society, while that profitable group of people could still enjoy meaningful wealth increase for the needs of their personal life and the expansion of their businesses, then inflation might be a very useful tool for the economy; accordingly, as the result of the inflation in the above hypothetical example, not only would country A as a nation accumulate a huge amount of wealth in total, but also could its prices of goods and services become almost the same as those in country B, and thus a bit of saving would make its citizens not only able to consume goods and services from country B, but also able to travel to country B as tourists.

On the other hand, if there was no inflation in country A, which means the prices of domestic supplies of goods and services are all fixed, then the wealth increase of those manufacturers of type T products from their exportations would not depreciate as with inflation, but the increase of the income of most ordinary citizens because of the economic growth would be much slower. Although the market would still be boosted to certain extent because of the spending of those profitable manufacturers, a large amount of the increase of the total national wealth would stay in the hands of those manufacturers without being shared with other citizens in the nation. Consequently, this would worsen the social polarization. While people might be tempted to assume that the polarization effect could be offset by a special taxation policy to restrict the wealth accumulation by individual people, they would not be able to solve another even more serious problem caused by the fixed price policy as the means to avoid the inflation, which is the crippled demand and supply mechanism in the domestic market, let alone the worsened imbalance of the domestic economic development. This is because pricing is a very important determinant for the consumption of goods and services. When the total buying power increases, if the domestic prices are all fixed, then the increased total buying power might cause severe shortage of certain goods and services (as well as the possible abuse of certain natural resources), and the unnatural redistribution of the buying power among ordinary citizens by taking heavy taxes from the wealthy people might make this situation even worse.

Besides, as long as country A would stay in a market economy (instead of a planned economy), a forced redistribution of wealth through taxation from the wealthy to the poor could help the economy only if it is limited to certain extent, for otherwise it would hurt the reproduction capacity of manufacturers; therefore, even after the heavy taxation, a large amount of the wealth increase from the exportations would still be retained by those rich wealthy people, and the social polarization would still get worsened because of this.

Of course, the market economy is a complicated open dynamic system, and sometimes some previously hidden factors might come into play and thus smooth things out. But in general, as a natural wealth mover, inflation could serve to redistribute the wealth in a relatively smooth way without risking ruining the economy due to the possible negative effects of fixing the prices as mentioned above, as long as it does not get out of control.

Now let’s take a look at what would happen to country B. Let’s assume that the currency of country B is not a hard currency to be accepted by other countries for international transactions, and thus people of country B need to use a currency of another country (e.g. US dollar) to buy goods and services from country A, then the importation from country A itself would reduce the national buying power of country B since it will reduce their total possession of the hard currency. In case the currency of country B itself is an internationally recognized hard currency, then importations would increase the debt of country B to country A.

Therefore, in this hypothetical example, inflation helps to change the worldwide wealth distribution among countries by redistributing the wealth increase within country A.

On the other hand, if the domestic production capacity of country A is weak, then in order to satisfy the increased domestic purchasing power as the result of exportation, some other people would import goods and services from some other countries (including country B), which will cause a reversed wealth movement out of country A. Therefore, a balanced economic growth in various areas of all sectors would be an important assurance to keep the wealth within a country.

Unlike taxation and any other officially enforced order or private philanthropic activity to redistribute the social wealth, the redistribution of wealth increase by inflation as discussed in the above hypothetic example happens naturally.

Although the above analysis on the domestic wealth increase redistribution is conducted with a hypothetic example of exportation, the conclusion about the wealth redistribution mechanism of inflation applies to the redistribution of the wealth created in any other ways.

3.1. The necessary awareness against the negative effect

Here I do not mean to promote inflation in general. We all know that inflation does hurt people (especially the poor people) and could have negative (or even disastrous) impact upon the economy if not being properly tamed ^[1]. However, without the knowledge of the redistribution mechanism as discussed here, people would not really understand how inflation operates in the economy, which could possibly cause whatever measures taken to handle inflation to be quite haphazard.

4. The Role of National Wealth in Imports and Exports

A nation's aggregate wealth exerts a significant potential influence on its import and export activities. First, citizens of wealthy nations generally demand a higher quality of life, which is reflected in the superior quality of their everyday consumer goods; this serves as a powerful form of cultural advertising for building brands in the international market. Furthermore, aggregate national wealth helps merchants establish the credibility that is crucial for import-export transactions. Additionally, national wealth can be leveraged as collateral or sold to raise necessary funds during critical moments.

4.1. The misleading nature of national wealth

On the other hand, national wealth can also foster a collective sense of complacency or misconception within wealthy nations. It may lead governments and citizens to place excessive reliance on their “paper wealth”—believing that financial capital alone is sufficient assuming they can buy whatever they need with their money—while neglecting the importance of sustained manufacturing and innovation. This phenomenon is clearly evident in how some developed western nations were suddenly startled to find their manufacturing sectors struggling to keep pace with China’s rapid rise.

Within the components of national wealth, real estate values are particularly prone to creating misconceptions. Although real estate often accounts for a substantial share of a nation's GDP, excessively high property values do not necessarily contribute positively to the development of a market economy—beyond their roles in financial leveraging, projecting an image of affluence, and serving as a vehicle for personal wealth storage. High real estate prices can significantly increase the costs of social mobility and development, thereby becoming a burden on progress.

5. Final Remarks

In an era where imports and exports have become essential pillars of national economies, a lack of accurate and comprehensive understanding of the philosophy in this area could make it difficult to truly grasp the economic development status of a country, a region, or the whole world, and thus difficult to see through the dazzling goings to gain profound insight into the geopolitical influence exerted by international trade and the technological and economic advancement of nations.

This article focuses primarily on the philosophy behind imports and exports, without delving into the associated mechanics of international finance. For instance, beside exports (including disguised exports through attracting investment, and developing tourism), countries could also have other means of acquiring foreign currency, such as borrowing or even resorting to illicit methods—none of which are of interest in this discussion.

[[1]]Dai, R. (2019). The Philosophy of Inflation. Retrieved from: https://www.academia.edu/100910723/The_Philosophy_of_Inflation