International Trade and Finance Paper

What happens when there is a surplus of imports brought into the U.S.? Cite a specific example of a product with an import surplus, and the impact that has on the U.S. businesses and consumers involved. When there is a surplus of imports brought into the U.S. the cost of the product will still have to drop. The cost behind a product to the seller is defined by the amount of money it cost to introduce the item, the amount of money to store the item and the shipping to stores and establishments. When the items are in excess it will have more supply then demand and the items have to be sold at a lower cost to get the items sold, this also affects other similar products by forcing prices to have to drop to equal sales needed. China has a large trade surplus with the United States that has grown since the late 1980’s. When large imports are acquired and the money is not returned or able to be paid back the national debt will increase to make up for the difference and the result of this process will cause employers to cut labor costs, general programs will be affected by being cut and have to make exports increase to the equal amount of imports also cutting supply in the United States. (Bergsten, 2006) What are the effects of international trade to GDP, domestic markets and university students? International trade is vital to building strong money supply between countries. When international trade has grown since 1928 where world trade recorded $635 billion building the gross domestic product at about $1060 within the United States. This number was 60% of world trade within the United States GDP. The world trade percentage decline until 1950 then increased to 280 percent, about $41 trillion which shows that international trade is growing and important to the GDP. This has had a strong impact on domestic markets and university students. Domestic markets have to compete with world trade imports to counter the competition and adapt to lower prices for similar products. Domestic markets also are affecting by international trade because cost of production is higher in the United States and jobs can be outsourced to foreign countries at a lower production cost. University students feel the effect of international trade when those jobs are outsourced and when technology advancements are made in foreign countries the education becomes more essential outside the United States while the cost of going to school will increase and being able to pay for education becomes more difficult. How do government choices in regards to tariffs and quotas affect international relations and trade? Tariffs are taxes added to international goods imported, when a higher tariff is in affect it could affect the production levels of certain goods and increase the price of those items that are imported. This could possibly have an effect on exports that small business within the United States make and affect the price of those items. For example if the United States government wanted to trade with a smaller economic country it could present a lower tariff to influence trade between the two causing certain items to be at a lower cost and other products that are at higher price will cause money circulation to slow down and a surplus of products could remain. What are foreign exchange rates? How are they determined? Foreign exchange rates are the difference in value between countries currency. For example Mexico’s “Peso” value is $12.9255 compared to the United States “Dollar” which is $1.0. This means for every $13 in Pesos will equal $1 in Dollars. Also the New Zealand has a value of its “Dollar” at $0.8219 compared to the value of the American “Dollar” at $1.0, which means for every $.82 of a “Dollar” from New Zealand will equal $1 of American “Dollar”. (Federal Reserve, 2012) The foreign exchange rate is determined by how much money supply is acquired and transferred by countries in transactions of good and services. It is also defined by the economic state of different countries and how they conduct policies to build their currency to a standard strength level. 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? China is the one of the largest growing nations in the world when it comes to its financial standing, market and advancements in technology. China also is the largest purchaser of United States treasury debt buying billions of U.S. debt in recent years with a total building up to over $1 trillion. If the United States was to restrict all goods from being imported from China, we would cut one of the largest growing markets in the world out from our own export productions. Materials in China are more cost effective for the United States to buy then its own purchases within the country and if the United States was simply to restrict all goods coming in from China international relations could possibly take a serve downward spiral effect on spending in the United States and a recall of the U.S. treasury debt that has been purchased could be issued. If China was to stop lending and importing the United States would suffer from higher interest rates and a massive increase in the percentage of national debt which can take many more jobs away from the public and cut government funding drastically. It is important to keep a strong relationship between the U.S. and China and a restriction on goods coming in from China would not benefit the United States at all. References Bergsten, C. F (2006) Peterson Institute for International Economics, http://www.iie.com/content/?ID=27 Bradsher, K. (2009) New York Times, China Losing Taste for Debt From U.S., http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?_r=0 Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin. Gongloff, M. (2012) Huffington Post, China Doesn’t Fear The Fiscal Cliff, Buys Massive Amount of U.S. Debt, http://www.huffingtonpost.com/2012/12/17/china-us-treasury-debt_n_2316032.html?utm_hp_ref=business Federal Reserve (2012) Foreign Exchange Rates, http://www.federalreserve.gov/releases/h10/current/ Investopedia (2011) The Basics of Tariffs and Trade Barriers, http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp#axzz2FIUkyvWR