Macroeconomics: The State of U.S. Trade Policies and the GDP
Introduction
According to a report published in the Washington Post said" 20 years ago globalization was pitched as a strategy that would raise all boats in poor and rich countries alike. In the U.S. and Europe consumers have their pick of inexpensive items made by people thousands of miles away whose pay was much lower than theirs. And in time trade barriers would drop to support even more multinationals expansion and economic gains while geo political cooperation would flourish"( Collins,2015). This statement clearly implies that globalization is beneficial for all economies and there will be availability of various products at affordable prices if trade barriers are removed. But as economies are becoming more liberalized the competition among countries are increasing and the developed nations are facing problems like unemployment, lower wages , inequality etc. Developed country like U.S. also faces huge competition in terms of cheap products, inequality among workers, wage rate and higher imports. Data shows that the total trade including exports and imports accounted for 30 percent of U.S. GDP (GDP = consumption + investment + government spending + exports -imports) in 2013. U.S exports increased in 2013 to 2.3 trillion which has increased 2.9 % from 2012. But the imports also increased to $ 2.7 trillion which was less than the rise in previous year. So in the year 2013 the gap between exports and imports decreased. But U.S economy was affected due to foreign investment and trade (Collins,2015). .
Trade agreement and Economic gains
The trade policies were started after the second world war by U.S and the European countries. International Monetary Fund and the World Bank was established in 1944. The first trade agreement was the General Agreement on Tariffs and Trade (GATT) which was signed by twenty four countries in the year 1947. By the year 1994 the number of countries increased to 123. All the countries agreed to the principle of lower tariff, open economies and free trade. During this period the import tariff fell sharply in all the countries. According to data it fell from 30 percent to 5 percent during 1950s. For better transaction of trade between countries , the Uruguay Round of Negotiations was started and it led to the creation of World Trade Organization in the year 1986. The agreement was finalized in the year 1994. Since the year 1940 the trade among various countries became very complex but recent negotiations in Doha, Qatar in 2001 focused more on the underdeveloped countries. Due to emerging problem in WTO , U.S. policymakers have given importance on regional and bilateral trade establishing the North American Free Trade Agreement (NAFTA) in 1994 between Canada and Mexico. There were other bilateral trade agreements with Columbia, Panama, South Korea. There were free trade agreement with seventeen other countries. There were various trade agreements that U.S implemented with more than 20 countries. It also entered into the negotiations of the Trans Pacific partnership(TTP) with countries of the Asia pacific region and also with Trans Atlantic trade and Investment Partnership(TTIP) with European nations. These TTP countries account for 44 percent of trade of U.S goods and services and 85 percent of U.S agriculture exports(The Economics Benefits of U.S. Trade, 2015).
U.S being one of the leading open market in the world with an average tariff of less than 2 % so many countries export goods and services to U.S . It increases the consumer spending in the importing country as variety of products are available at cheap prices. Investment also increases among small and medium sized economies due to increase in competition in the global market. The cheap availability of labor has also increased the profit of the businesses. Supply of raw materials are easily available. This increases the GDP of the country and in turn helps in the development of the economy.
Barriers to Trade
Trade barriers were imposed by different countries since long time. These restrictions were imposed by the government to earn revenue and to protect the domestic industries from the competitive foreign firms. There are different protectionist policy of the government that restrict a country to import goods and services to foreign countries As mentioned earlier U.S tariff is less than 2% but in most countries the tariffs are high compelling the nations to produce the goods within the country. Though there are free trade agreements but there are value added taxes of the importing country that makes the goods costly in the importing country. Due to this consumers purchase less of the foreign product and more of the domestic product which is comparatively cheaper. This method of high tariffs and quotas are implemented in many countries to provide support and protection to the domestic companies.
Though other trade negotiations like TTP and TTIP where tariffs are low it gives importance to the liberalization of protected sectors, better ways of customs and regulations, increasing the intellectual property protections, providing better competitive and transparent business laws.
Trade Balance vs. Unequal Exchange
The basic theory of unequal exchange is buying cheap products from foreign countries and exporting dearer goods to them . That means goods are imported at cheap prices and exported at higher prices. By this method one economy becomes rich at the expense of the other. This was more prevalent when the colonies were established by Britain. The modern theory of trade i.e. the theory of comparative advantage is based on the benefit of both the trading partners. But the recent developments and negotiations of trade are more organized and are controlled by topmost organizations so that there is no discrimination between developed, developing and underdeveloped countries. There were criticism of supporting the farmers of U.S who do not reduce their prices . This created problem in the underdeveloped countries as they faced tough competition in the global market exporting agricultural products. In order to uplift the position of poor countries and to provide better facilities to trade with the rich countries CARD( Center for Agriculture and Rural Development) was introduced in the Doha Round Negotiations by WTO .
Trade Effects on labor and wages
Free-Trade vs. Industry Protections
Effect of Trade Deals on US foreign policy
U.S. foreign policies are always focused towards the benefit of the trading partners. To strengthen the relation with foreign countries, to improve the reforms, to stabilize the weaker economies, for more investment and improve the economy as a whole. Regional and bilateral trade with the neighboring countries have increased created the access to cheaper goods and raw materials and the countries exporting the goods also experience rise in GDP and increased sales. This has generated more employment in the domestic country.
Conclusion
Though there are various concern about the implications of the various trade policies on the U.S. economy like the support of TPP and TTIP . The economist argued whether this will have a positive impact in terms of employment, inequality, reforms, safety etc. In spite of these problems trade in beneficial for all countries in some way or the other and in the main source of economic growth.
References
Mike, Collins (2015). The Pros and Cons of Globalization. Forbes Magazine.
Retrieved from www.forbes.com/sites/mikecollins/2015/05/06/the-pros-cons-of-globalization
Mathew, Slaughter and Philip Swagel (1997). Does Globalization Lower wages and export Jobs?. International Monetary Fund.
Retrieved from www.imf.org/external/pub/ft/issues11/
Alex, Bryson (2014). Union Wage Effects. IZA World of Labor . Retrieved from www.wol.iza.org/articles/union-wages-effects.pdf
The Economics Benefits of U.S. Trade. (2015). The White House.
Retrieved from https://www.whitehouse.gov/sites/default/files/docs/cea_trade_report_final.pdf
