Soergel (2016) reported that U.S. trade gap contracted in March as exports and imports plummeted. As of March 2016, the net trade deficit was at $56.9 billion a lower figure compared to February’s $62.9 billion. Imports fell to $173.6 billion while export to $116.7 billion the least monthly tally since 2011. The smaller gap boosted the GDP of the country. Soergel noted that the international trade nearly came to a halt in February with the Baltic Dry Index falling to an all-time low indicating that few players were actively buying or selling products from the other nations. However, the index has raised modestly since February, and economic analysts contend that it would improve with time. If one factors the exchange rate, the US dollar makes goods from the country expensive in the international markets. To some extent, the trade deficit gap is not bad because it indicates that Americans are buying more product from abroad. However, in the long term, it could harm the economy because it influences economic growth adversely. That notwithstanding, the trade gap would at least bolster the quarter economic growth metrics in the country.
America imports products based on the relative costs of production and transportation into the country including any tariffs that may apply. It follows that the instrument of trade policy would either discourage or encourage the importation of goods. For instance, if the prices of coffee in the home country and foreign nations are different, trade occurs. For example, if the price of coffee is lower in the foreign, the state would export it by assuming the tariffs are merely the transportation costs. The incentives for the foreign exporters are high if the price added to the duties is a lower than it is in the home market (destination). However, the government may alter the duties payable to protect the home market from unhealthy competition.
Reference
Soergel, A., (2016, April 16). U.S. Trade Gap Contracts in March as Exports, Imports Plummet. The U.S. News. The U.S. News April 16, 2016. Retrieved on April 30, 2016 from http://www.usnews.com/news/articles/2016-04-27/us-trade-gap-contracts-in-march-as- exports-imports-plummet
