Economics of International Trade Essay Example

Introduction

The United States of America economy is the largest economy in the world despite the domestic level challenges and the rapidly changing global landscape. Its economy represents about 20% of the global economy (Witter and Karagiannis 2018). The level of trade, production and spending makes the American economy the largest in the world. 80 percent of the world purchasing power and 95 percent of the world population are outside the United States, therefore the future economic growth and employment opportunities will heavily depend on expanding international trade, the global marketplace, and investment opportunities. This paper analyses key microeconomic indicators and their

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Gross Domestic Product

The gross domestic product presents "a sum of a country's production which consists of all the purchases of the goods and services produced by a country and services used by individuals, firm's foreigners and the governing body" (Witter and Karagiannis 2018). It comprises of investment expenditure, government expenditure, consumer expenditure and net exports hence it represents the economic health of a country. The GDP by year is a good overview of economic growth. The graph below shows United States gross domestic product growth for each year since July 2015 to July 2018

Gross Domestic Product Growth (2015-2018)

The quarterly growth since the recession has generally been positive with some small exemption. In in the first quarter of 2009, there was a 5.4 % decrease in GDP. The national bureau of statistics attributed the decrease to the economic recession that began in December 2007. By the end of the year, GDP finally started to improve reaching 15 trillion in the year 2010. This came after the enactment of the American recovery and reinvestment act and the financial stabilization bill that has seen the economy grow at an annual average of 2.3 percent since then. In the third quarter of 2018, GDP rose at a rate of 3.5 percent, these has been attributed to increased consumer expenditure, increased local and national government spending, nonresidential fixed investment and private inventory investment. None residential business investment increased by 7.3 percent while consumer expenditure exceeded economists' expectation to grow 4 percent more(OECD 2018),.

American consumers have been considered as the engine of economic growth for the past several decades with the highest contribution recorded in 2012 at just under 71 percent of the gross domestic (OECD 2018), The American economy is still among the largest in the world, however when ranked based on per capita GDP, it ranks behind countries like Qatar, Luxemburg and Norway. Although large economies and growing like china and India are nowhere to be found in the top twenty.

Unemployment

Unemployment rate is an important indicator with both economic and social dimensions. It is considered as a lagging indicator because during economic down time, it usually takes time before it begins to rise. Once the economy starts to recover, employees are usually cautious to hire new employees and it usually takes time before it starts to fall. After the 2007-2009 economic crises, the US economy experienced persistent high unemployment rates. Job growth revival was week and the most debated aspect of the recession. Several cyclical and structural factors were suggested as the causes including the countries dependence on the service industry, policy and economic uncertainties.

U.S.A Unemployment rate since 1950-2018

There are widespread concerns on the impact of international trade on American jobs. The general perception is that international trade has negative impact on employment. Exports have a positive impact on employment; exports support the farmers and the jobs of workers who manufacture exported goods and services. However, imports negatively affect employment in United States particularly in the manufacturing sector.

Inflation

Inflation is the general increase in price of goods and service in an economy over a given period. In the United States, inflation is determined using the consumer price index (CPI). This is a measure of the change in price of a given market basket of goods and services purchased by people (Lovely 2017). The international monetary fund projects that inflation in United States will increase at an average rate of 2 percent annually until 2023

USA Inflation from 2010-2017 and Projected Rate to 2023

The current moderate rate of inflation is considered normal. Rising inflation makes local goods services expensive, thus the local consumers turn to cheaper imports. The rise in price reduces exports due to competition in international market

Balance of trade

Over the past few years, international trade flows have heavily influenced the United States current account balance. The current trade deficit has led to a deficit in the in the current account. Investment and assets earnings from abroad contribute a small part in the current account and are not sufficient to offset the deficit. Generally, the deficit implies that goods and services purchased from abroad are more than what the foreigners are purchasing from the United States Since the 1990s the deficit has progressively widened, in 2006 it reached the highest level at 5.8% of the national gross product (Feldstein, 2017).. However, the deficit has narrowed over the past few years following increased oil production. Moreover, the net capital inflow makes it possible to finance the current account deficit. The continued investment in United States' assets by foreigner has led to growth in the net international investment position of the country over time. America is a top recipient of foreign direct investments (FDI), with about 80 % of the investments coming from industrialized countries like japan, Netherlands and the United Kingdom (Feldstein, 2017)..

References

CELASUN, O., MIHET, R., & RATNOVSKI, L. (2012). Commodity prices and inflation expectations in the United States. [Washington, D.C.], International Monetary Fund.

Feldstein, M, 2017. Underestimating the Real Growth of GDP, Personal Income, and Productivity. Journal of Economic Perspective, 31, 145-164

LOVELY, M. E. (2017). International economic integration and domestic performance. http://www.worldscientific.com/worldscibooks/10.1142/10062#t=toc

WITTER, M., & KARAGIANNIS, N. (2018). The Caribbean economies in an era of free trade.

OECD (2018), Real GDP forecast (indicator). doi: 10.1787/1f84150b-en (Accessed on 1 November 2018)