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In the recent past, international trade has grown over to become an integral part of economy of any country. Imports and exports constitute the international trade.
A country that has more imports than exports is referred to as a net importer while one that has more exports than imports is referred to as a net exporter (Colander, 2010). This paper answers some questions about surplus imports in the US, effects of international trade on GDP, effects of government actions on tariffs on international trade and relations, and foreign exchange.
Import surplus in the United States of America have several effects, both on the economy as a whole and on the businesses in the country. Imports surplus in the US means that there are fewer jobs for the American citizens since their domestic production is less due to more imports than exports.
This also means that the country is entering into debt in order to have a surplus imports. The countries trading with the US usually lend it money whenever the imports are higher than the exports and this is detrimental to the US economy. Some of the products that the US runs a surplus imports are oil, motor vehicles, and consumer products and electronics.
The excess of the production by the GDP will be exported to the international market (Colander, 2010). However, if a country is a net importer, international trade may be detrimental to it, since it will make the country borrow in order to trade and this has a negative effect on the economy. If a country is a net exporter, the domestic markets will be boosted to produce more and import less while the vice versa is true.
International trade has also beneficial effects to the university students. This is because most university students see an opportunity to export their skills once they graduate from university. International trade therefore provides employment and innovation avenues to the university students who may otherwise lack jobs within their native countries.
Government choices in terms of tariffs and quotas
In order to manage their economies, governments will enact some rules and regulations aimed at protecting their country’s GDP if it’s a net importer, or enhancing its GNP if it’s a net exporter. In achieving this, most governments enact some policies and guidelines in form of tariffs and import quotas (Wendy & Colin, 2003).
Trade tariffs are put in place in order to safeguard the domestic markets from the would-be exporters from other countries. This is done mainly to protect domestic products through ensuring that they are consumed locally.
Trade tariffs and quotas therefore put stringent requirements for importing some products that it becomes almost impossible for a country to export a product into the other country. In doing so, it boosts the GDP since local products are consumed locally. These choices on tariffs and quotas also put a strenuous relationship between countries because as a country enacts macro-economic policies to protect and boost its economy, it always does at the expense of its trade partners.
Foreign exchange, always denoted as ‘forex’, is simply the conversion of one currency to another. This happens because different countries have different currencies and therefore, there is a need to attach a value of a particular currency in relation to the other currency. This occurs by the use of foreign currency rates which are defined as the exchange rates (Colander, 2010).
Foreign exchange occurs on different accounts. First, when a person is trading in a foreign denominated currency, he/she needs to convert the currency he holds to the acceptable legal tender in the trading country. Foreign exchange is also used to help a country to stabilize its own currency through buying and selling foreign currency reserves. This is done through buying or selling foreign currencies such as the pounds, yen, and buying dollars. The country may also buy dollars in order keep foreign currency reserves.
Foreign exchange usually happens in commercial banks where a person holding any form of currency goes to the bureau de change in order to sell or buy another currency. These foreign exchange bureaus usually set an exchange rate to be used. The exchange rates are usually determined based on the purchasing power of a currency at a given time.
America cannot restrict all goods coming from China because of several reasons. First, products exported from China to the US are not wholly manufactured in China. China, in addition to manufacturing and exporting, also acts as an assembly point for many Asian products and blocking all imports from China would virtually block much of the imports from other countries as well. This would be detrimental to the relationship that the US has with the Asian countries.
The US cannot minimize the imports coming from other countries because it needs trading partners where it also needs to export. The only way to maintain this relationship is also accepting to import some goods which are produced by other countries which have a comparative advantage over the US.
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Colander, C. (2010). Macroeconomics. New York: McGraw Hill.
Wendy, C., & Colin, M. (2003). Journal of Financial Economics. London: Elseiver.