When there is a surplus of imported goods from foreign countries, the United States slips into a deficit. This deficit is created from the trade balance. The largest quantity of imported goods is the transportation equipment. Between 2006 and 2010, automobiles were the highest ranked import, followed by energy-related products. This surplus of imported vehicles resulted in the inability of American automobile manufacturer to produce comparably priced vehicles. This further resulted in U. S. automobile manufacturers needing to either receive government aid in some cases, or file bankruptcy and close for good.
The closing of several automobile manufacturing companies and plants resulted in an increase in the unemployment rate, as displaced workers have been unable to find comparable work. International trade can also have a major impact on the Gross Domestic Products (GDP). It can affect the level at which imports and exports are operating, it can reduce consumer spending, and affect the unemployment rate. A higher rate of exports to imports will increase the GDP, while more importing will have the opposite effect. These fluctuations in trading have negative and positive effects on the U.
S. economy. The more the United States exports, the more income it is gaining. This is good for the rate of employment, as the higher demand for U. S. products requires more productivity. Trading deficits also have an impact on consumer spending. When consumer spending is high, trading deficit percentages increase. The opposite is true when consumer spending is low. Domestic import markets also increase as the value of the American dollar increases. International relations and trade are affected by tariffs and quotas implemented by the
United States government. Tariffs and quotas allow the U. S. to differentiate between the domestic supply and the world supply. Due to protection from the government, domestic markets need not fear competition from foreign producers who provide higher quality, lower cost products. However, too many restrictions on imports could cause a decline in productive trade with foreign countries. These other countries could institute tariffs on U. S. goods which would result in the United States having to pay higher prices for imports.
In addition ot all of this, international trading relationships remain unaffected, as free trade agreements allow countries to buy and sell goods at fair market value. Another factor in international trade are foreign exchange rates. Foreign exchange rates are the rate one country’s currency may be exchanged for the currency of another country. It is an economic measure implemented by the government to ensure equilibrium of trading activities. A decline in the exchange rate decreases a country’s purchasing power.
Foreign exchange rates are affected by the interest rates imposed by a country for currencies as a result of demand. These interest rates are managed by the central banks of each country, in the United States this would be the Federal Reserve, or the FED. Exchange rates are determined by several factors, interest rates, productivity, inflation and debt are all factors in determining the exchange rate of any given country. Since the 1970’s, when president Nixon took steps to fully normalize relations between the United States and China, China has become one of the major import countries for the United States.
While it would seem that the United States could impose many restrictions on trade with China, many would argue that it would be very unwise. A restriction on imports from China could be very detrimental to the United States economy. New restrictions would not only prompt monetary action from China, such as higher prices, it could also prompt civil actions, perhaps even war. Free trade allows countries to engage in trade without additional tariffs or quotas. If China is not imposed with high tariffs and quotas, the United States government knows that the savings will be passed on to the consumers.
Limiting the amount of goods imported from china would also greatly limit the variety of products available to U. S. consumers. This would reduce profit and lead to an increase in unemployment. This could continue on the result in an unstable United States economy. In conclusion, international trade has a major impact on the economy of the United States. Historically the United States has been a major power in international trade and finance. Currently, the U. S. is in a decline which has cause some major debts.
An increase in imports, a decrease in the GDP and fluctuations in the exchange rate have led us to being indebted to many countries while we work though the current recession. Resources: Colander, D. C. (2010). Macroeconomics (8th ed. ). Boston, MA: McGraw-Hill/Irwin. McTeer, B. (2008). The Impact of Foreign Trade on the Economy. Retrieved from http://www. economix. blogs. nytimes. com U. S. Consumption Spent on Foreign Imported Goods. (2011). Retrieved from http://www. americawakeup. net