Critical Analysis about International Trade and Finance Speech

Exports and imports are what encompass international trade balance. When there are more exports over imports a trade surplus happens and when there are more imports over exports a trade deficit happens. A country will acquire large quantities of foreign assets when it runs in a trade surplus so it can lend internationally to other countries. A country sells of its assets to other countries and becomes a big debtor nation when it runs on a trade deficit. A country will suffer economically when it decides to borrow more than it lends in other foreign countries.

As a result of the expanded trade deficit, the value of the dollar will decline. According to Colander, "we pay for a trade deficit by selling off U. S. assets to foreigners—by selling U. S.

companies, factories, land, and buildings to foreigners, or selling them financial assets such as U. S. dollars, stocks, and bonds" (Colander, 2010, p. 505), This being the case, in order to avoid the possible problems of a trade deficit the United States will have to produce more than it will consume.

Import Surplus In the United States, the Census Bureau says, “The Nations international trade deficit in goods and services decreased to $38. billion in March from $ 43. 6 billion (revised) in February, as imports decreased more than exports” (United States Census Bureau, 2013). An example of a surplus of import of the U.

S. is electrical machinery. Which by itself, is the largest import category between the U. S and China. According to the office of the United States Trade Representative, 411 billion in 2011, a 9.

4 % increase ($34. 4 billion) from 2010, and up 299% since 2000” (Office of the United States Trade Representative, 2012). Through cheaper labor and materials, China has a competitive advantage in this product.U. S. businesses that manufacture electrical machinery and the like, can suffer because the products from China may be purchased at a lower price than theirs.

As a result, their businesses may have a difficult time competing with those particular products made in China. If they match China’s prices, the domestic businesses may have minimal profit at best. Consumers would benefit from the import surplus due to having more choices in the market and allowing for a lower overhead by buying cheaper electrical machinery products. Impacts of International TradeInternational trade may also have an influence on the Gross Domestic Product or GDP, domestic markets, and university students. The GDP is “the total market value of all final goods and services produced in an economy in a one-year period” (Colander, 2010, p.

183). The GDP can contract if the U. S. is consuming more than it produces.

As a result, if the imports are greater than the exports, domestic markets may lose earnings because income is being generated in the world market. If the U. S. has more exports than imports, domestic markets can increase their profit margins because of the demand for their products through international trade.University students are also affected by this method of trade because of the jobs that can be created or that are decreased. University students on decided career paths or those who have already began their career, will benefit if there is a trade surplus.

With a substantial trade surplus, it can create more job opportunities, and an heightened demand for domestic labor. Depending on career fields, university students may have a hard time finding jobs if there’s a trade deficit. Their chosen careers may no longer be in demand, consequently resulting in possible under and/or unemployment. Tariffs and QuotasTo solve issues posed by the trade deficit and to protect domestic businesses, the government chooses tariffs and quotas.

Tariffs are taxes imposed on international goods and quotas are limits on the number of goods that can be exported from other countries to the U. S. If the government implements too high of tariffs, international trade may weaken. Foreign businesses may no longer trade their products to the U. S. because of the high taxes.

This can also weaken the international relations between the participating countries. High quotas, on the other hand can strengthen international relations and trade because it means that international usinesses can export more products to the U. S. The government benefits from a tariff because they will reap the revenue from it. Domestic businesses also benefit from it because foreign competitors are prevented from selling products at prices that are too low and that will not match those of domestic products.

Quotas can benefit domestic businesses also because they can retain a percentage of the market share. This in turn will help the citizens of the country because they can retain their jobs from domestic businesses because of tariffs and quotas preventing domestic companies from closing or reducing their employees.Consumers may lose in the sense that the prices are not low. They will still benefit from it because their domestic jobs are protected. Foreign Exchange Rate Foreign exchange rates are another aspect that needs to be understood clearly about international trade. An exchange rate is the “the price of one country’s currency in terms of another’s currency” (Colander, 2010, p.

107). It is determined by observing the differences in inflation, interest rates, debt, political stability, and so on.For example, countries that have a lower inflation rate will statistically have a higher exchange rate compared to the country it is trading with. The exchange rate is important for investors because it can determine if the foreign investments will increase or decrease. Trade Restriction Impacts China is the largest supplier of import goods to the U.

S. in 2011 (Office of the United States Trade Representative, 2012). If the U. S.

has high import surpluses on China, why does it not have the government restrict all goods coming from them?It may benefit domestic businesses and generate more jobs locally, but it would have a huge impact on the U. S. economy. Restricting all goods from China would result in higher costs of products in the market. The inflation rate would increase because of the higher cost incurred from labor and materials in the U.

S. Consumers tend to spend less when the inflation rate is high. This would cause decreased economic activity that can contract the U. S. economy.

If the U. S. minimizes the amount of imports from other countries, domestic businesses may not have the capability to meet the demands of U.S. consumers.

Consumers would suffer with high prices from increased demand. Conclusion International trade is a necessity. It strengthens the exchange rate and makes harmonious international relationships. If tariff and quotas are on a just level, domestic and international markets can benefit. By U. S.

government continuing its policies to increase more exports than imports, it would be investing on manufacturing products with comparative advantage on its side. The dollar would then be strengthened and the economy can be stimulated by the government solving problems on trade deficit.