Good morning ladies and gentlemen, my name is ____________. I am delighted to have this opportunity to talk about the basics of international trade. We shall consider some scenarios of international trade like what happens when a country has a trade deficit, the effects on GDP and exchanges rates and a few other issues that affect our economy.
This reliance on imported goods negatively affects the local markets. The markets of locally produced goods dwindle in the face of stiff competition form the imported goods. This eventually leads to low production of the local goods due to unhealthy competition. In severe cases of market saturations, the local goods are eventually edged out of market. It also reduces the competiveness of USA in the other world markets. For example, it would be difficult to find a shoe made in America if there are surpluses imported from other countries which must meet certain quality standards before they are imported, that is they are of better quality or rare raw materials and he be preferred over locally produced shoes. In the process of losing competiveness, the USA imports services from the supplying countries.
What effects do these imports have on gross domestic product (GDP)? The imports have a negative effect on GDP while exports have a positive impact on the GDP. When we ask ourselves what was the impact of our export and imports of goods and services have on the first quarter of the real GDP estimate, which was released recently? Well, in the official report, the real exports of services and goods increased by 2.9% in the first quarter as compared to a decrease of 2.8% in the fourth quarter. Thus, the exports alone accounted for a positive change in real GDP estimate by 5.7% from the fourth to the first quarter. However, the real imports of goods and services increased by 5.4% in the first quarter compared to a decrease of 4.4% in the fourth quota. Considering the imports alone, there was an increase in imports of 9.8%. This made a net contribution of foreign trade in goods and services a negative 4.1%.
For university students and the rest, the international trade leads to more goods supplied into a country. Therefore, the student shall have access to a variety of goods and services which are of international standards. The local markets also, shall have prices of the goods lowered due to the steady supply of goods and services.
Since international trade leads to an imbalance in trade, the government imposes tariffs on the imported goods to control the quantities of the goods been imported. At the same time, the government applies quotas to limit the goods been imported. A quota is a limit of goods in tonnage that a country may export into a country or a country can receive into its market from outside. The main idea is to ensure that goods are not imported from international markets in the country and saturate the local markets. In such a scenario the local producer of the same goods are negatively affected and in extreme cases edged out of the market completely as I had indicated earlier.
What is a foreign exchange rate and how is it calculated? Foreign exchange rate refers to the ratio unit of a certain currency can be exchanged for another unit currency. This is mainly between currencies of different countries, e.g. the ratio of exchange between a USA dollar to that of a European Euro.
There are calculators and software’s which are used to calculate the exchange rates of different currencies. The exchange rates fluctuate depending on the trade levels, inflation rates as well as other events that affect the economic activities in the world. Therefore, the exchange rates are not static. On average 1 USA dollar is equivalent to 0.93 European Euro.
Why is it not possible for USA to restrict goods from China? This is because such a move shall be detrimental to the economy of the US. There are goods that china produces which are not found in USA and hence, USA needs those goods. At the same time, there are goods that USA sale to china. In simple terms, China and USA are trading partners. It is also the same reason that it USA cannot stop goods from other countries since it cannot produce all the goods and services it requires, at the same time, USA needs to sell the goods it produces to these countries. If it stops all goods from the other countries, they shall also stop goods from USA from been sold in their countries leading to drop in income from exports.