United States Government Policies on Trade
The US Agricultural and Enterprise policies tackle production and productivity from the perspective of the farmers. The US Agricultural sector focuses on sustainable farming practices to ensure that the products are meant for commodity, exports, and sustenance of local agricultural product-based industries. In the 2017 US fiscal year, the exports from the agricultural sector amounted to $139 billion, with a trade surplus of approximately $2 billion for the entire agriculture-based sector (OUSTR, 2017). Sustaining the Total Factor Productivity (TFP) as part of the Enterprise Policy is a critical instrument in the global trade markets. The resources utilized are accounted when carrying out the process of auditing production in the US.
For instance, the growth accounting production method gives a practical approach of quantifying the variations in the agricultural TFP over a period of time and provides updated data on inputs, outputs, and accompanying prices (OUSTR, 2017). Thus, the US Agricultural sector nourishes the local and global population. The Textile Policy is another significant factor in the US trade with foreign nations. Textile is a foremost import and export for the US and its trade partners. The Textile Policy has restrictions on the export and sale of fashion, footwear, and clothing. This means that textile production has to be classified, standardized, and regulated to the type of goods to be imported or exported. In the US, different textile products are classified for tariff to make trading in the global arena simpler and more integrated, especially with European partners (OUSTR, 2017).
The development assistance policy such as the USAID has become a vital instrument for penetration into new markets and actual deletion of trade barrier, especially with the African continent. Through such assistance, the US government and other partners have become influencers of trade decisions being made in the third world countries. For instance, the USAID project in Rwanda has given the US a much needed space to sign several bilateral trade agreements such as the Rwanda-US trade alliance that is estimated to benefit the two countries up to a tune of $3 billion (OUSTR, 2017). Lastly, the liberalization policy on Africa has become a vital tool for expansion of trading space between the US and countries within the continent of Africa. For instance, the AGOA trade policy is beneficial to the US in that products that can only be found in Africa can easily find markets in the US in return for subsidies for products that are originating from the United States (OUSTR, 2017). This policy has increased competitiveness of the US products in the African continent.
Factors of Production
The three factors of production that have a good or bad impact on the US trade are land, labor, and capital. Land management has helped many in the agricultural sector to determine their productivity and level of efficiency. Cheaper labor translates to higher profit margins and vice versa. Without adequate agricultural outputs due to limited capital, the US might not be in a position to effectively feed its citizens or earn foreign exchange from the export of surplus. Therefore, there is need to sustain agricultural production practices such as soil monitoring for greater and sustainable productivity since land is an important factor of production. Once harvesting is completed, local trade and external shipment can commence. For instance, in coffee production, the US is a member of the International Coffee Organization, which exports and imports coffee across the globe. Although American farmers sell majority of their agricultural outputs in the local markets, a good share is exported to other regions because there is a positive correlation to labor, land, and capital as factors of production.
Relative and Absolute Advantage
Absolute advantage is the differential advantage in the ability to produce a good efficiently between two trading partners (Peng, 2017). For instance, Spain has an absolute advantage over Iceland in fruit production because the combination of factors of production in Spain results in cheaper cost of producing fruits than in Iceland. Due to the dynamics of factors of production, two trade partners may decide to focus on producing goods that are best suited to their available resources in order to freely trade with each other (Peng, 2017). This concept is referred to as relative advantage. For instance, if Mexico can produce 20 wine units and 10 cheese units, it opportunity cost is 10/20 of cheese. On the other hand, if the US can produce 30 wine units and 22 cheese units, it means its opportunity cost is 30/22 giving it an absolute advantage over Mexico. However, since the opportunity cost of producing wine in Mexico is lower than in the US, Mexico may opt to produce wine while the US may opt to product cheese to give these trade partners a comparative and absolute advantage (Peng, 2017).
The Transatlantic Trade and Investment Partnership
The Transatlantic Trade and Investment Partnership is a bilateral trade agreement between the US and members of the European Union to promote trade (Padmanabhan, 2014). The Gulf region partners have expressed interest to join this pact. The agreement touches on specific regulations, market access, and co-operation principles. As the TPP stands, the US Senate should not rectify the agreement since both parties stand to benefit to a tune of €120 billion for EU partner states and €90 billion for the US in addition to €100 billion for other parts of the world (Padmanabhan, 2014).
References
OUSTR. (2017). 2017 Trade Policy Agenda and 2016 Annual Report. Web.
Padmanabhan, L. (2014).TTIP: The EU-US trade deal explained. Web.
Peng, M. (2017). Global (4th ed.). New York, NY: Cengage Learning.