Imports – Exports and the Balance of Payments

Readers Question: What counts as an import on the Balance of Payments?

Current Account measures trade in:

1. Goods,
2. Services,
3. Investment incomes
4. Net Transfers

A Debit on the credit account occurs when the UK imports goods and therefore money flows from the UK to oversees to purchase it. If debits are greater than credits the UK will have a current account deficit.

Examples of debits

• UK consumers buy Chinese manufactured toys
• UK consumers go on holiday to China
• A Chinese firm in the UK sends back profits to China.
• UK firms import raw materials from China.

If for example, a UK firm, with HQ and everything in the UK, wants to sell goods to just UK citizens, BUT has it’s goods made in China for the purposes of cheap unit costs, do the items that have been ordered by the UK count as imports?

Yes, if a UK firm imports some manufactured goods from China, this purchase will count as an import and a debit on current account

Or is it only an import when a Chinese company makes the goods, and sells them to UK consumers, with the profits flowing back to China?

This is also an import. But, not the only type.

i.e. would the sale of goods from a uk firm to uk people count as imports on lets say, the balance of payments, when they were produced in China? Because the profits, would remain in the UK.

The import would be the initial purchase of goods from China. When the goods are then sold on to UK consumers this is not counted as imports.

For example, a firm may buy £10m worth of half manufactured goods from China and sell them onto British consumers for £17m. In this case, there would be a debit of £10m on the UK current account.