What Are Export Incentives?
Export incentives are regulatory, legal,monetary, or tax programsthat are designed to encourage businesses to export certain types of goods or services. Exports are goods or services that are produced in one country and then transported to another country for sale or trade.
Exports are an important part of the exporting country's economy, adding to that nation's gross output. Exports can boost sales and profits for a company if the goods create new markets or expand ones that already exist, and may also offer an opportunity to capture global market share. Exports also aid in the creation of jobs as companies expand and grow their workforces.
Key Takeaways
- An export is a good or service made by one nation that is then shipped to another nation to be sold or traded.
- Exports help boost the exporting country's gross output and help corporations increase sales, create jobs, and expand into new markets.
- Export incentives are programs that governments create to help encourage businesses to export goods and services.
Understanding Export Incentives
Export incentives are a form ofeconomic assistance that governments provide to firms or industries within the national economy in order to help them secure foreign markets.A government providing export incentives often does so in order to keep domestic products competitive in the global sphere.
Types of export incentives include export subsidies, direct payments, low-cost loans, tax exemption on profits made from exports,and government-financed international advertising.While less concerning than import protections such as tariffs, export incentives are still discouraged by economists who claim that they artificially create barriers to free trade and thus can lead to market instability.
The world’s largest exporting countrieson a dollar basis are China, the United States, Germany, Japan, and The Netherlands.
How Export Incentives Work
Export incentives make domestic exports competitive by providing a sort of kickback to the exporter. For instance, a government might give an exporter a tax break to help deflate the price of its exported goods. This in turn increases the competitiveness of the product in the global market and ensures that such exports have a wider reach. Generally, this means that domestic consumers might pay more than foreign consumers for the same product.
Sometimes, governments will encourageexports when internal price supports (measures used to keep the price of a good higher than the equilibrium level) generatesurplus production of a good. Instead of wasting that good, governments will often offer export incentives.
Export Incentives and the World Trade Organization
This level of government involvement can also lead to international disputes that may be settled by the World Trade Organization (WTO).As a broad policy, the WTO prohibits most subsidies, except for those implemented by lesser-developed countries (LDCs).The idea is that export protections create market inefficiencies, but that developing countries may need to protect certain key industries in order to promote economic growth and prosperity.
Why Are Export Subsidies Bad?
Export subsidies have attracted criticism for a range of reasons. A primary concern is that subsidies deflate prices, and as a result, distort markets and introduce inefficiencies. Export subsidies also raise questions about unfair competition, which can trigger tit-for-tat tariffs.
Where Do Most U.S. Exports Go?
The biggest purchaser of U.S. goods is Canada. The country accounted for $356.5 billion—or 17.3%—of total goods exports in 2022. That same year, the European Union purchased $350.8 billion in U.S. goods. Other specific countries among the top purchasers of U.S. goods included Mexico, China, Japan, and the United Kingdom.
What Does U.S. Export the Most?
The biggest exports from the U.S. in 2022 were petroleum products. This includes $138 billion in refined petroleum, $118 billion in crude petroleum, and $116 billion in petroleum gas.
The Bottom Line
Export incentives are government programs that encourage businesses to exports goods and services. Exports play a critical role in supporting a country's economy, adding to gross output and creating jobs. As such, governments may elect to provide incentives, such as in the form of tax breaks of regulatory relief, to encourage and sustain them. Many economists and regulatory bodies discourage export subsidies on the basis that they create market inefficiencies.
