What happens when there is a surplus of imports brought into the U.S.? When the dollar value of goods and services imported into the United States exceeds the dollar value of goods and services exported to other countries from the U.S., it creates what is called a surplus. When there is a surplus of imports that are brought into the United States, a deficit is created from the trade balance that occurs.
Having a surplus of desired imports can create a lower price for the U.S. consumer and have a positive effect on the employment rate within the country where the goods were imported from. This has an effect due to the fact it will keep their citizens working. According to “U.S. Consumption Spent on Foreign Imported Goods” (2011), transportation equipment ranks the highest on the list of a huge flow of foreign imports that entered the United States from 2006 to 2010, with energy-related products coming in second. These two major imports were high when the real-estate market was in full gear. When the housing market began to suffer, lending agencies started losing money due to the consumers not being able to afford to pay higher mortgages moving forward. What are the effects of international trade on GDP, on domestic markets and on university students?
Some effects of international trade to Gross Domestic Products (GDP) include the level in which imports and exports are operating, issues dealing with employment, and limits of consumer spending. Higher exports and lower imports may add to the GDP, while lower exports and higher imports contract GDP. These changes usually cause positive and/or negative changes within our economy. When there is a gap between imports and exports and the trading of these types of goods have been decreased, the result is a smaller negative effect on the GDP—-allowing the economy to grow (McTeer, 2008). Trading deficits can also have an impact on consumer spending. When consumer spending is at a higher rate, trading deficit percentages increase. The opposite actually occurs when Americans are not spending as much money. Domestic import markets can also increase as the value of the American dollar increases. It can also tie into the topic of how international trade can affect university students. The direct impact of international trade on students sees an increasing demand for innovative ideas and qualified individuals to help keep our domestic markets strong.
A university student can be seen an asset; the higher the GDP, the larger number of jobs that will be available for future graduates. If the GDP ends up tanking, graduates are probably better served seeking employment outside of the United States at that time. How do government choices in regards to tariffs and quotas affect international relations and trade? Government choices in regards to tariffs and quotas affect trade and international relations by allowing the United States to decipher between the domestic and world supply. Due to the protection from the government, domestic markets do not have to be worried about competition from foreign producers who produce a better quality product at potentially lower prices. There are too many restrictions on imports with trading partners and this could cause a foreign government to respond in a negative manner by making the U.S. pay a tariff on goods, which would cause the U.S. to end up paying millions of dollars for imports. What are foreign exchange rates? How are they determined?
Foreign exchange rates are rates a country’s currency may be exchanged at/to another country’s form of currency. It is the economic measure imposed by the government, which plays a very important role in a country’s trading activities. A decline in the exchange rate decreases purchasing power of returns from income. Foreign exchange rates are affected by the interest rates that the country imposes for currencies because of the current demand and are influenced by the central banks. Foreign exchange rates factors are high interest rates, low productivity, and debt mixed with inflation hikes. A higher currency rates increases a country’s costs of exports and decreases the costs for imports. Other factors that determine exchange rates include current deficits, the economy’s stability, and details of trade. Why doesn’t the U.S. simply restrict all goods coming in from China? Why can’t the U.S. just minimize the amount of imports coming in from all other countries? In dealing with restrictions the United States could impose on goods that come from China, the thought is that the U.S. could receive quite a deal of backlash. The U.S. restrictions on goods from China could cause many problems that would not be ideal at the current moment.
The restrictions may cause actions that prevent the nations from continuing to do business as they have previously. This effect could create bad blood between the two countries. Free trade is allowing countries to continue the import and exporting of goods without tariffs or quotas being imposed. The American consumers end up benefiting from China buying goods at a lower cost. If the U.S. ended up minimizing the amount of imports that come from other countries, the U.S. would become limited in the amount of goods many businesses would be able to purchase and sell. Ultimately, this would reduce profits and could lead to an increase in unemployment. If unemployment becomes an issue, it creates a troubled economy and could increase the deficit moving forward. References
U.S. Consumption Spent on Foreign Imported Goods. (2011). Retrieved from http://www.americawakeup.net McTeer, B. (2008). The Impact of Foreign Trade on the Economy. Retrieved from http://economix.blogs.nytimes.com/2008/12/10/the-impact-of-foreign-trade-on-the-economy/?_r=0 Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin