Fact Check: Does an increase in imports directly reduce GDP?
No
Imports are first added to GDP before being subtracted out, meaning they have a net-zero effect on GDP.
One measure of GDP is the sum of consumption, investment, government spending, and exports minus imports. The first three categories initially include the value of purchased imported goods and services but these are subtracted out to avoid artificially inflating the value of domestic consumption. Thus, imports have no direct effect on GDP, positive or negative.
For example, if a consumer buys a $1,000 imported laptop, consumer spending in their country increases by $1,000 while net-exports decrease by $1,000, with no net effect on GDP.
Imports may indirectly lower GDP if they replace domestic consumption of goods and services, or if companies reduce investment to stockpile imports. Whether this is happening in a given period requires an analysis of macroeconomic trends, as imports in the GDP calculation are zeroed out.
This fact brief is responsive to conversations such as this one.
Sources:
St. Louis Federal Reserve | How Do Imports Affect GDP?
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