The United States of America has been determined to have a mixed and capitalistic economy. The U.S as a country has a well-developed infrastructure, a lot of natural resources, and it is also highly productive. The United States has been determined to have a great influence on economic issues on a global scale.
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However, America has had some trade deficits that have had enormous implications. This paper will discuss the economic implication of America’s Trade Deficit. It has not been ascertained that the trade deficits have hurt America Economically; however, the deficits have been signalling a likelihood of future problems. These deficits have various economic implications (Alfred, 2004).
First and foremost, the trade deficits will directly and significantly reduce the exports that the country normally has, and as a result, the valuable income received from export trade will remarkably decline, thus negatively affecting the overall national budget. Consequently, in order for the country to make up for the lost expenditure, the government may involve itself in heavy borrowing so as to meet its budgetary requirements. Such borrowing could further contribute to future inflation rates, a factor that would devastate the economy of the country.
On the other hand, trade deficits would affect the country’s total imports. With deficits, the country would no longer be in a position to import normally from its trading partners. This would be mead that the country would affect the good relationship with other trading partners as they look for better countries to sell their commodities too.
In addition, the United States would no longer enjoy the economic benefits that come along with these imports, for instance, reduced prices and waivers. This would affect the economy of the country since there would be a low supply of goods and services to the American market. Such a case can result in extreme shooting of consumer prices and possible future inflation.
Trade deficits would lead to the loss of strong and powerful trade partners. Precisely, the US trade relations with a country like China. China and The Us have a very special trading relationship due to the fact that there is a low cost for labour in China and heavy mechanization in the US.
China, therefore, produces labour-intensive products and exports them to the US, while the United States produces capital intensive products and exports them to China. This means that China and the US are important import-export-trading partners with each country depending on the other for economic sustainability. A deficit in trade would hence have a negative effect on the economy of America by losing China as a trading partner (King P.1999).
A trade deficit would render the country dependent on other sectors of the economy for funding. This would result in public debt. Public debt is used to refer to the total amount of money that the various branches of the government would owe, including the interest. The government would hence result in the extreme measures of using credit control, taxation and management of the supply of money as tools to attain its economic endeavours and development agenda.
However, this has the potential to affect employment and price levels of goods and services. In the long run, the country would experience low productivity resulting from the taxation of the manufacturing firms and high unemployment rates. The aftermath of this would be a likely low demand for the country’s products locally and internationally as a result of high prices and inflation.
Alfred, G. (2004): Public Finance. New York: McGraw-Hill Book Company.
King P. (1999): A Review of Economic Theory. London, New York, Augustus Kelley publishers