Nov 10, 2017 in Economics

International Trade and Finance

The difference between the values of imports and exports results to what is called balance of trade of a nation, in this case the United States. Exports are the value obtained when services and goods originating from the United States are normally sold to other states, or the expenditure on American items (goods and services) by foreign states (Sahu, 2013). The value is achieved when the United States buys goods and services produced by other countries, the expenditures made by citizens (residents) of the United States on services and goods manufactured by other countries. For instance, a Samsung mobile phone manufactured in Japan and bought by a citizen of America living in New York is just an example of a US import. In other words, a balance of trade would also mean net exports. The issue of balance of trade is generally important to the economic growth of a country and, therefore, there is a need to understand the state of the US macro economy.

One or two times the value of exports may overcome or exceed the value of imports and in a simple macroeconomic term, the nation is referred to as having a balance of trade surplus. However, the vice versa of this is when the value of imports more or less exceeds the exports  and this nation is commonly referred to as being in a balance of trade or foreign trade deficit. According to Sahu (2013), this rise in deficit owes its nature to increasing interest rates that in turn leads to a rise in inflation in the US. This surplus in imports may lead to a drop in prices, even to the point of incurring losses.

Consequently, international trade is beneficial to the US economy. Mcteer (2008) affirms that GDP is one way that economists use to determine how much the nation is producing. Both exports and imports add value to the GDP. Low imports versus high exports add value to GDP, while low exports and high imports reduce GDP (Nelson, 2013). Furthermore, an increase in balance of payments leads to a significant bump in aggregate demand and also raises gross domestic product. A tariff, in simple terms, is a tax on imports that are collected by the federal government, while a quota is a limit set on a certain good or service that can be imported into the US. Gorman (2003) asserts that the government can promote trade with a certain country by lowering tariffs on imports from such country because of the lower cost of importing services and goods.

Exchange rate refers to the purchasing power of one currency compared to another. Similarly, it is the rate that one currency will be exchanged for another currency (Nelson, 2013). This foreign exchange rate is determined by supply and demand for each one. The central bank occasionally helps to set a demand and supply for a nation’s currency, or just the demand and supply, or goods and services produced in a country. It is clear that if the US stops imports from China, then China eventually does the same to US exports to China. The US relies on external markets and manufacturers for good business. Minimizing imports would mean buying local products, thereby immediately reducing the standards of living. This is in the sense that access to cheap goods from other nations would be a think of the past. Finally, piracy would be on the rise (Katherine, 2011).

In conclusion, the macroeconomic state of the US is of immense importance. Understanding international trade is fundamental. Determining the rate of imports and exports is primarily through understanding the demand and supply of a particular currency. Imports from foreign states are essential in supporting the well-being of the economy of the USA. In addition, balance of payments or trade adds or reduces value to the gross domestic product of the US economy.

 

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