International trade is the exchange of goods and services between countries with the purpose of acquiring something that each country does not produce. Countries depend on each other to boost their economies. Each country exports goods so as to get money to import what they do not produce. Besides, international trade also helps in the expansion of production and consumption of a country. Therefore, every country benefits a lot from the international trade. This essay discusses the importance of international trade for the US, factors that have promoted the growth of international trade since World War II, and effects of global competition on US firms.
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Importance of Foreign Trade for the US Economy
International trade has played a significant role in the rapid growth of the economy of the United States, hence enabling the country to maintain the top position in the global economy through improved trade systems. Government policies which support trade have led to the rapid growth of the economy of the United States and other nations.
International trade has played a major role in the growth of gross domestic product of the economy of the United States by raising the volume of production. A country improves the volume of output through improvement of trade patterns. For a very long period, the economy of the United States has been doing well due to good marketing systems and the open trade system permitted by the government. Trades of goods and services between the United States and other countries have contributed to the increase in the volume of production (“World Trade and the WTO: 1995-2014”). Since the United States serves as the main economic market for all nations in the world, it has led to the development of international trade and the market for all products. Most countries have come up with trade blocs which have eliminated trade barriers, hence improving trade among countries. Tariff removal and reduction of taxes which hinder trade among countries are some of the actions taken (Brue et al. 408).
Nations produce goods in line with their competitive advantage, which means that countries with the disadvantage in manufacturing will acquire goods from countries with advantage in manufacturing. Some of the countries have raw materials needed for the manufacturing of certain products and this makes them produce them at a higher profit than any other nation. This has resulted in improvement of the productivity of a country regarding quantity and quality. Since a country does not produce all raw materials needed for the manufacturing process, countries have become dependent on each other. Therefore, countries depend on each other so as to acquire products which they have less advantage to manufacture. Some countries over-depend on other nations due to trade deficits since they import more than they export. The government should work hard to have low trade deficit so that they can have good economic growth (Brue et al. 398).
Trade pattern is a way in which countries conduct trade. Exchange of goods and services between countries is made possible through international trade. The United States has networked with almost all countries of the world and this has improved the economy of the country since it has expanded the market for the products it produces. Availability of markets all over the world has enhanced economic stability of the United States.
International trade lowers the cost of products since countries manufacture goods that are locally available at a lower cost. In order to make international trade easier, nations have established a common currency, hence simplifying transactions in different nations. The World Bank, the WTO, and the IMF have formed for the purpose of making financial systems of different nations advantageous for the international trade. The WTO has been formed to incorporate more nations into the trading system, which would have ensured a steady flow of goods. The IMF and the World Bank help countries with the recovery from the financial crisis, as well as resolving some quarrels between countries (Zoellick).
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Factors that Have Facilitated the Rapid Growth of International Trade since World War II
Good transport and communication. Good transport and communication have significantly improved international trade through and with the help of a good transport system such as roads, railway, water, and airline means goods can be transported from one country to another very quickly. Good transport also enhances movement of perishable goods from one country to another without incurring losses. In turn, a good communication system has promoted growth and expansion of global trade. When communication systems between two different countries are good, it becomes easier to conduct trade and come up with a good business structure. After World War II, most countries improved their communication and transport systems, which significantly contributed to trade with other nations. Development of transport and communication systems in the United States has brought a great improvement in trade and production (“Fundamental Economic Factors Affecting International Trade”).
Political changes. After World War II, the political environment changed and this resulted in the expansion of global trade. Countries became politically stable and this created a free market economy. This favorable political environment in many countries has brought freedom in the global market. Governments from different nations have come up with policies which favor trade among nations. Governments from all over the world have encouraged open trade, which has increased movement of goods and services from one nation to another. The stable political system has also resulted in the establishment of production quotas in order to encourage good competition between nations. The trade quotas permit nations to export a part of their products to the global market, which has improved the exchange of goods since each nation has a share in the global market (“Fundamental Economic Factors Affecting International Trade”).
Advanced technology. The progress in technology has played a very important role in the growth of international trade. Improvement in technology leads to the production of good products and this has improved trade among nations. With the development of technology, communication gadgets such as mobile phones, email, fax, and other means of communication have been created and this has resulted in the improvement of international trade. Besides, technology leads to the invention of more convenient and faster means of transport such as vehicles, airplanes, ships, and electric trains. If goods and people move faster from one place to another, trade becomes easier and more efficient. Improvement in technology has led to the initiation of outsourcing services since countries have been challenged to improve their production systems. Outsourcing has been a very important achievement in international trade through which quality and quantity of products have been improved.
Industrialization. A rapid global growth of industries caused by the industrial revolution has contributed to the growth of international trade. Countries depend on each other for the supply of raw materials for their industries.
Globalization. Modern countries have become integrated and people all over the world are connected. Due to good communication and transport systems connecting different nations globally, goods and services can move within hours from one nation to another, which has encouraged trade.
Comparative advantage. This has played a major role in the improvement of international trade since nations are encouraged to produce goods according to their capabilities. The United States is a big market for different commodities since it has the advantage of producing different products. Other nations manufacture goods depending on available raw materials, which has led to the improvement of quality and quantity of goods produced (Brue et al.).
Labor mobility. This has contributed to the exchange of goods between nations. Trained and untrained laborers have been able to move from one country to another since World War II. This has improved the rate of production since labour is available in manufacturing industries. Countries that are less populated can import skilled and nonskilled laborers after an improvement in trade between countries.
Effects of Global Competition on US Firms, Workers, and Consumers
Due to global competition in companies, the structure of wage has changed from fixed to variable depending on output and skills and, therefore, wages increases as one moves up the ladder. Global competition has also led to the introduction of bonuses, incentives, pay on commission, and stock options within the firm. This has resulted in a significant improvement in quality and quantity of the manufactured products. Thus, living standards of workers have greatly improved. Global competition has also led to the reduction in trade barriers, higher imports, and reduction of production costs, which has lowered the cost of products, hence making them affordable for consumers (Cuñat and Guadalupe).
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International trade has been of great importance to the economy of the United States and other nations. For this reason, countries should try as much as possible to maintain a good environment for international trade. There are various products that people use in their daily life like vehicles, oil, meat, plastics, fruits, vegetable products, dairy, eggs, honey, and many other products that the US imports from other nations. This is a proof that nations depend on each other for products they do not produce locally. This is an indication that international trade boosts the US economy through improved gross domestic product, steady flow of raw materials from other nations, and improved trade patterns. International trade has rapidly grown since World War II due to some factors such as political stability, good transport and communication systems, advanced technology, labor mobility, and production in line with the country’s comparative advantage.