This article will look at the effects of a trade imbalance, plus underlying conditions.

Some general information: High imports usually means that you are paying less for goods in other currencies, because parties are buying them at cheaper sources. More export makes it more expensive to buy items in your own country, due to increased competition and possibly because manufacturers need to be persuaded to not export.

Keep in mind import and export are kind of yin and yang; a lot of one tends to make the other more expensive. Over time the currency exchange rates are supposed to correct this by making the used currency either more expensive or cheaper as a direct result of foreign trading demand. High export tends to originate from poorer countries, as costs are lower, these poor countries become richer by selling, thereby creating a country that can increase its imports as both government and citizens become richer. In the real world it does happen that governments intervene to increase exports, by subsidising production and artificially weakening their currency. State subsidised import is far rarer, outside of specific areas such as subsidising fuel, but not inconceivable; it is expensive and can damage local activity.

Import trade imbalance effects

Here we discuss the effects of an trade imbalance, that revolves around high import. This is commonly referred to as a trade deficit; you buy more than you sell.

Positives

Cheaper goods: There are more choices, usually at a cheaper price, available. If the price is not cheaper, there is no point in buying foreign. But the extra choices can be a reason to do so, if the high import is caused by a high living standard (rich citizens who can afford something different). Nowadays we also see a lot of services being imported, this includes streaming services: These are mostly based exclusivity of their content, but could also compete on price or whether they allow ads.

Potential positive reasons for foreign investments: If you sell something to an area, it makes sense to start making it there to avoid shipping costs. Though this heavily depends on other potential barriers, such as local labour costs or tariffs that apply to raw materials but not the finalised item (if also applied to the end product, you would pay the tariff anyhow). Having a regional production facility could increase exports, lessening the negative effects of high import.

Negatives

Buying, or any other activity, in a different country tends to be more expensive, because importing floods the market with your country`s money; making it less valuable. Though the actual net total price difference between camping in a poor country, or staying at a 5 star hotel situated in the most expensive country on earth, is likely bigger than that of currency fluctuations.

High amounts of import tend to stifle internal manufacturing and even services. Whatever you import, you didn`t do yourself. A list of (top 10 for example) imported goods/services can be used to tackle this problem, thereby creating a sought after product to export yourself.

Prolonged periods of high import always have a bill to be settled. Possible outfall includes currency devaluation, making it hard to import anything, or foreign ownership of assets; those you import from can use their pile of your currency to buy assets in that currency. Earlier we mentioned that currencies eventually correct the trade imbalance, this is where that happens.

Export trade imbalance effects

Below are the trade imbalance effects of a trade surplus discussed. In this scenario sales exceed buys in monetary value, with groups outside the country.

Positives

More demand from offshore clients, plus new clients. There is the opportunity to continue exporting in the long run by increasing added value, through using profit for investing in better technology and other items that can be exported to maintain a desirable position.

Cheaper holidays: Travelling tends to become cheaper, as demand for your currency increases its value.

High savings, assuming the money from sales is saved/invested. On a nation level, via fees or nationalised companies, foreign reserves can expand and/or debt can be reduced; both actions are excellent ways to prepare for the future, when trade inevitably drops. Reserves can be used to manage exchange rates and low debt can be used to allow more lending, preferably for investments in other areas.

Being the party that makes the goods, given you the ability to make changes that benefit you, assuming there is no viable alternative. This also applies if there is an alternative for the specific product, but you also export other materials and advanced goods which cannot easily be replaced. In the latter scenario, you could limit supply of other goods if discontent is voiced over any changes you wish to keep.

Negatives

Exporting for years, with no end in sight, can result in negative feelings with policy makers of your clientele. This is a combination of being unable to compete and fear of them becoming overdependent on your exports.

Being dependent on export opens the economy to external shocks, such as general issues with fuel supplies or trouble along bigger trade routes. Any combination of these would dramatically increase shipping costs, for both fuel and insurance.

Causes

We will mention why a trade imbalace could exist. Note that other real world factors are likely in play.

Industrialisation versus developed country: Most trade surpluses originate from a poorer country selling to a richer one, possibly specialising in a few products. Richer countries tend to buy more, because factory work has less added economical value than service jobs. There are also pre industrialised countries, with limited trade potential, these produce agricultural goods, farming or ranching and such. Their goods can be produced anywhere so it really is a matter of costs and lack of import barriers. Note that this route is not without bumps or exceptions: An developing country, when doing so later than others, is highly likely to import machinery and knowhow from richer partners, thereby increasing its imports more than those partners did during the same stage in their development, during which they invented the machines.

High amounts of natural resources; these can work both ways. Selling the natural resource would result in a trade surplus, but natural resources also require refinement to become end products, so the possibility for more advanced jobs exists. Besides selling resources, food and other goods also have to be bought, which leads to imports. So it really depends on how this is handled, as an easy export or as a chance to become better.