Today I would like to discuss, with you, the current state of the U.S. macro economy. I will attempt to simply address concepts and terms which focus on international trade and foreign exchange rates. Much of the discussion will focus around the surplus of imports brought into the U.S., and the impact it has on the U.S. businesses and consumers involved. I will also describe the effects of the international trade to GDP, domestic markets, and university students. It is important to understand how the government’s choices, in regards to tariffs and quotas, affect international relations and trade; so I will describe the interactive relationship in regards to tariffs and quotas, and how the government’s choices affect international relations and trade. We will also understand how foreign exchange rates are determined, and identify the reasons the U.S. does not restrict goods from China and minimize imports from other countries.
Imports in the U.S.
The U.S. imports many goods from various countries around the globe; and the trading of these goods plays an important role in the stability of economic growth for the U.S. The U.S. imports goods or products from other countries such as China; and if the U.S. has a surplus of imports it means there is an increase in the trade deficit, which is not good for the U.S. because trade deficits usually increase unemployment. Examples of products with an import surplus in the U.S. are China’s auto-parts. The U.S. auto-parts industry is at risk of lost jobs because of the rapid growth of auto-parts imported from China. The Chinese government unfairly subsidizes and trades auto-parts to the U.S.; which in return jeopardizes jobs related to the auto-parts industry in the U.S. Exports from the U.S. support jobs, but imports supplant production which would otherwise support U.S. employment.
The U.S. auto-parts trade deficit increased from $9.5 billion in the year 2000 to $31.2 billion in the year 2010. During the year 2010, China’s exports of auto-parts exceeded their imports of U.S. products by 725 percent. The impact of this discrepancy between the two countries forces consumers and businesses, in the U.S., to evaluate which products are worth buying. Many times China’s products are manufactured just as thoroughly as their counterparts in the U.S., and they are often much cheaper to purchase. In order to save money, many U.S. companies and consumers will purchase goods from China, and also establish businesses and create jobs in that country which would otherwise benefit domestic employment (“Economic Policy Institute”, 2012).
I would like to next address the effects of international trade to the GDP, domestic markets, and university students. International trade has become important to the U.S. economy in recent years, and the benefits of a global market improve the U.S. standard of living. The problem for the U.S. is the contraction of the GDP because of reduced exports and higher imports. The outflow of domestic currency to foreign markets can decrease the currency of the dollar, and make imports more expensive to purchase.
If the currency of the dollar decreases, domestic markets will suffer because now goods cost more to purchase. Domestic markets can also be affected by international trade. If imports are cheaper than domestic company products, then domestic markets may suffer because the imports are cheaper to purchase. Many international students and public and private institutions also benefit from the effects of international trade. The revenues generated by international students are important because they usually pay out-of-state tuition, and the education sector usually benefits from a trade surplus (“Business Day”, 2013).
Tariffs and Quotas
The government’s choices, in regards to tariffs and quotas, usually have a big effect on international trade and relations. Many countries rely on net exports to maximize their productions companies. When quotas and tariffs are introduced to the global market, it can affect the flow of goods and products to consumer nations; and can negatively impact the production companies. Because it is usually beneficial for international companies to maximize production, tariffs and quotas can potentially strain international relations and trade.
I would like to next address foreign exchange rates and what determines them. Most of us are aware that currency has a value attached to it. The difference between the two country’s currency value, and the rate for what they will be exchanged for each other; is known as the foreign exchange rate. The exchange rates are determined in the foreign exchange market, which determines the local demand for foreign currencies (“Businessdictionary.com”, 2013).
Goods in the U.S.
The question is often asked, if China has restrictions on U.S. imports, then why does the U.S. not restrict goods coming in from China? To answer the question simply, Chinese imports are important to the U.S. because China has the fastest growing markets in the world. If the U.S. were to stop imports from China, then accordingly China would stop imports for the U.S., and we would not have access that important market. It is vital to have relationships with the global market, because those trade relationships keep the U.S. relevant in the global economy. Many economists agree if the U.S. were to stop trading with foreign countries, then the entire global economy would collapse, which would result in the entire globe going into a depression.
In conclusion I would like to state that I hope I have addressed all of you questions about the current state of the U.S. macro economy. It is important to understand the importance of all countries involved with foreign trade, and how their imports and our exports directly affect the U.S. economy and our jobs. While we would like to be independent from a lot of foreign goods, the idea of total independence from foreign trade is virtually impossible. As we discussed earlier, the reason is because of our trade deficits and their countries ability to invest in the U.S.
Economic Policy Institute. (2012). Retrieved from http://www.epi.org/publication/bp336-us-china-auto-parts-industry/ Businessdictionary.com. (2013). Retrieved from
http://www.businessdictionary.com/definition/foreign-exchange-rate.html Business Day. (2013). Retrieved from http://economix.blogs.nytimes.com/2008/12/10/the-impact-of-foreign-trade-on-the-economy/