International Trade and Finance
October 15, 2012
International Trade and Finance
Since the beginning of the current recession in 2008, the economy of the United States (U.S.) has been the spotlight of the media, government intervention, and the American public. In order to gain better understanding of the current health of the U.S. macroeconomy, one must review several areas of the economy including surplus of imports, effects of international trade, tariffs and quotas, and the restriction of imported goods from other countries such as China. As you will see, these areas are interconnected and changes in one cause larger changes in the other factors as well as the overall U.S. economy. Recent attention regarding American trade overseas has been focused on the current imbalance in trade, specifically an import surplus with foreign nations. A recent example is found in the U.S. auto parts industry which directly or indirectly supports 1.6 million jobs [ (Scott & Wething, 2012) ]. These jobs come from the manufacture and distribution of auto parts and auto tires. Although in 2009 the U.S. government made a significant investment in the auto industry, the impact to the auto parts industry has been minimal. Of the 400,000 jobs directly lost, only about 60,000 have been regained. The main reason for the slow return of these opportunities for employment is the rise of Chinese goods in the industry. In the past 12 years, China’s export of auto parts has increased more than 900 percent while the U.S. trade deficit with China for auto parts has increased to $9.1 billion [ (Scott & Wething, 2012) ]. These foreign parts coming in to the country are keeping American companies from being able to open up more jobs and are directly affecting the unemployment rate of the nation. In addition, there is a direct negative impact to Gross Domestic Product (GDP) of the U.S. One would think the immediate response would be trade restrictions and tariffs to counteract this invasion of Chinese parts. First, one must understand international trade and its impact to the U.S. economy. To gain clearer understanding of the effects of international trade, one can look at three areas: GDP, domestic markets, and even university students. The first and most obvious effect is to GDP. The sum of total imports minus exports is part of the equation economists use to calculate GDP, a number giving the total of consumption, plus investments, plus government spending, plus the sum of total of imports minus exports [ (Colander, 2010) ]. If there are more exports than imports, the GDP goes up, a positive effect. If there are more imports than exports, the GDP goes down, a negative reflection of economic health. The U.S. currently imports almost double what it exports, greatly reducing GDP. Domestic markets are also by international trade through the ability to weaken the domestic market by international competition. Protection of domestic markets is one of the reasons tariffs are employed. “U.S. government stimulus package of 2009 included a ‘Buy American’ clause that required recipients to spend the money they received on American, not foreign, goods [ (Colander, 2010) ].” The stimulus package set out with a mission to grow the domestic market by investing domestically. One of the few investments that are strong in the U.S. domestic market is the investment in university students.
The U.S. educational system is acknowledged around the world and gives American university students a comparative advantage in a variety of fields. American universities entice many of the brightest foreign students. For example, more than 50 percent of the engineering degrees go to foreign students, many of whom remain in the United States [ (Colander, 2010) ]. With so many degrees going to foreign students, many times at a high financial cost, it means that international trade at the university level brings in a substantial income to the...
References: Colander, David C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.
Nelson, K. (2012). Exporting and Importing. Reference for Business, Para. 3.
Radcliffe, B. (2011, June 8). The Basics of Tariffs and Trade Barriers. Retrieved from Investopedia: http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp#axzz29Ez5T0cj
Scott, R. E., & Wething, H. (2012, January 31). Jobs in the U.S. auto parts industry are at risk due to subsidized and unfairly traded Chinese auto parts. Retrieved October 10, 2012, from Economic Policy Institute: http://www.epi.org/publication/bp336-us-china-auto-parts-industry
The Economist (2012). The weak shall inherit the earth. The Economist Newspaper Limited. October 6-12, 2012. ISSN 0013-0613
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