Whether the Trend in America’s International Trade Has Been Good For the Country
The global monetary crunch had severe implications to several world economies. The US in particular is not an exemption. This crisis, dated from 2007, impacted negatively on the federal state’s trade deficit. Basically, there was a remarkable decrease in trade deficit.
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According to Nanto and Donnelly, (2011), this impact remained notable from 2008 up to 2009. However, it is critical to note that the country has steadily begun to gain recovery. Particularly, this positive trend has been realized with the entrance of the Obama’s administration. Indeed, it is obvious that if there is any negative trend in the international trade, then the global monetary crunch has a greater role in it.
In the past few years, the country’s imports have significantly reduced at an elevated rate relative to its exports. However, the forward patterns indicate that this situation has reversed. This is majorly because of the heightened demand for the country’s imports. Additionally, there is an observation that the country has extended into novel and rich global markets. The heavy exports destined to developing states and overseas investments within diverse sectors such as energy are critical.
This is because they are basic indicators of a positive trend in the America’s global trade. However, the impact of heavy competition, especially from the BRIC states is still evident. As growing economies, the BRIC have potentially dominated foreign rich markets (Cattaneo, 2010). Consequently, this has led to a reduced potential for the US to dominate such emergent economies.
In 2010, the trade deficit on international goods rose to $ 645.9 billion. This was based on the balance of payments (BoP) premises (Nanto & Donnelly, 2011). Comparably, this recorded figure was $505.9 billion greater than that of 2009. The American merchandise trade deficit realized in 2010 was notably greater with China. This was approximately at $273 billion, with European Union following at $79.7 billion. In a descending pattern, other notable trailers included Canada, Japan as well as Mexico.
Relative to the previous year’s observations, this depicts a forward trend. Critically analyzed, it can be noted that America has steadily progressed its international trade ties with the recently industrialized states (United Nations, 2009). These include Hong Kong, Taiwan as well as South Korea amongst others. In this new international venture, the US trade balance has remarkably increased since 2007. Consequently, increasing surpluses have been recorded from 2008 to 2012.
The total imports and goods exports within thriving economies have steadily improved. Therefore, it can be noted that despite its increasing debts, there has been a remarkable improvement. For instance, in 2010, the country realized a $165 billion in excess of investment income (United Nations, 2009). This was relatively high compared to other global economic powers. The international trade trends within the automotive sector have potentially contributed to this development.
In addition, several American corporations and multinationals have ventured into new global markets. The importance of advanced technology and energy trade cannot be underestimated. This is likewise to crude oil and transportation trade. Although still recovering from global financial crunch and competition impacts, the country’s international trade has potentially remained good.
What will happen to the US Dollar’s Role as a Reserve Currency?
It is admissible that although relatively steady, the US international trade has significantly dropped. Of particular concern are the trade deficits. Overtime, economists speculate that trade deficits might cause trade challenges if open overseas markets are to be maintained (Cattaneo, 2010).
Generally, the trade deficits mirror surfeit spending and savings deficiency within a domestic economy. Additionally, they depict capital imports dependence within a financial shortfall. Consequently, capital flow help to counterbalance the dollar outmigration meant for paying the state’s imported goods.
Exchange rate shifts assist in the balancing of trade. Therefore, an increasing trade deficit, if not harmonized by the overall capital flows remains detrimental. This is because it mounts a minimizing pressure for the dollar (Nanto & Donnelly, 2011). Consequently, the situation shrinks the deficit and makes America’s exports less expensive.
On the other side, it increases the expense on imports. Comparably, central banks within other states like China have a mechanism of maintaining their currencies to a constant rise. Basically, the general implication here is that the US dollar is set to fall as a reserve currency in the near future. Economists project a US dollar failure if the notable imbalances within the country’s deficit trade balances are not comprehensively addressed.
Is This Good or Bad or Does It Not Matter?
The importance of the US dollar as a reserve currency cannot be underestimated. As forecasted, the probable fall of the US dollar might have severe implications (Cattaneo, 2010). This is not only to the federal state, but also to other significant or emergent global economies. The dilemma on the appropriate currency to replace the US dollar reserve is obvious.
Even with a possible replacement, the global importance of this remains largely overstated. This occurrence is yet to create a significant global political shake up. Observably, all sectors within the globe are likely to be shaken by the shift. Particularly, the US might seize to enjoy the position of the world’s superpower. These illustrations indicate that the forecasted failure or decline of the US dollar as a global reserve currency is bad and might potentiate negative impacts.
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Cattaneo, O. (2010). International trade in services: New trends and opportunities for developing countries. Washington, D.C: World Bank.
Nanto, D. & Donnelly, J. (2011). U.S. International Trade: Trends and Forecasts.
United Nations. (2009). International trade statistics yearbook 2008. New York: United Nations.