Net exports represent the difference between the total value of a country’s exports (what it sells to other nations) and its imports (what it buys from other nations) over a specific time period. This value shows how international trade contributes to a country’s aggregate demand (AD).

Formula: Net exports (X − M) = Exports (X) − Imports (M)

Key points to understand:

• When exports are higher than imports (X > M), the country is a net exporter, which adds to its total economic demand.
• When imports are higher than exports (M > X), the country is a net importer, which subtracts from its total economic demand.
• Net exports change based on exchange rates: if a country’s currency becomes weaker, its goods become cheaper for foreigners, often increasing exports.
• Changes in foreign income also matter: if trading partners are in a recession, they tend to buy fewer goods, which reduces a country’s exports.
• Net exports act as a “leakage” in the economy; money spent on imports leaves the domestic circular flow of income, which can reduce the impact of the open economy multiplier.
• Economic concepts like the Marshall-Lerner condition and the J-curve effect help explain how trade balances adjust over time after shifts in currency value.