Imports Meaning
In case of economics when demand for good is more than the supply of good than the price of good increases but what if supply of goods of the whole country is less than the total demand of the whole country than the country will have to buy goods from other countries so as to meet demand of the country and under this situation the country will have to resort to imports. Imports refer to buying of goods by the local manufacturers and companies from outside the country and the companies or individuals who are importing goods from other countries are called importers. Imports are usually discouraged by governments because due to import the countries foreign exchanges reserves get depleted as importing leads to outflow of foreign exchange of the country. In order to understand more about this concept, one should look at the advantages and disadvantages of imports –
Advantages of Imports
Reduction in Manufacturing Costs
The first and foremost advantage of importing is that it helps in reduction of manufacturing costs because companies import products from other countries only when they find it cheaper and cheaper raw materials means lower cost of production and lower cost of production would results in higher profits for the company. In simple words as far as companies are concerned importing from other nations can result in an increase in the bottom line of the company if the company is able to find cheaper raw materials in other parts of the world.
Helpful during Emergency Situations
In case of emergency when due to drought, floods or other natural calamity countries is not able to produce enough than import is the only way because without importing country can face a severe shortage of essential items which can be disastrous for any country. In simple words imports in a way helps the country in averting any anarchy by avoiding a temporary shortage of resources.
Helpful in Strategic Relations
Imports can be very helpful if country wants to develop and maintain strategic relations with other nations because international trade is all about give and take and if country keeps exporting to other countries without importing anything than other nations will not like that, in simple words if country wants to have good strategic relations with other countries of the world than it has to do both imports as well as exports.
Disadvantages of Imports
Outflow of Foreign Exchange
The biggest disadvantage of importing is that it results in outflow of foreign exchange of the country because when companies purchase goods from other parts of the world than it has to pay them in their currency and when these importers buy foreign currency it leads to pressure on the domestic currency due to selling of domestic currency by the importers which in turn leads to reduction in foreign exchange of the country.
Country and Currency Risk
Another problem with importing is that there is country as well as currency risk because if company is completely dependent on other countries for their raw materials and if that country imposes tariff on their exports or worse completely ban the exports than it can be disastrous for the company besides currency risk is always there implying that company if not hedged against currency movements than it loses more money than gaining from doing imports.
Domestic Manufacturers are hit
When country imports raw materials and other products from other countries than domestic industries and manufacturers are hit because if imports are cheaper than local goods than few people will buy local goods and due to less demand ultimately industries or companies will be closed as they cannot keep absorbing losses for long periods. In simple words importing indirectly affects the local industries and manufacturers which in the long term can be a disaster for the economy of the country.
As one can see from the above that importing has benefits as well as limitations and although in some cases importing from other nations remains the only way but if country wants to achieve self-sufficiency, develop local industries and save foreign exchange than it should try to reduce imports and concentrate on improving infrastructure so that conducive environment can be provided for the development of local industries which in the long term can bring a lot of cheer for the economy of the country.