The United States under International Trade Operation Condition

In today’s complex economic world, neither individuals nor nations are self-sufficient. Nations have utilized different economic resource; people have developed different skills. This is the foundation of world trade and economic activity. As a result of this trade and activity, international finance and banking have evolved.

Foe example, the United States is a major consumer of coffee, yet it does not have the climate to grow any of its own. Consequently, the United States must import coffee from countries (such as Brazil, Colombia and Guatemala) that grow coffee efficiently. On the other hand, the United States has lager industrial plants capable of producing a variety of goods, such as chemicals and airplanes, which can be sold to nations that need them. If nations traded item for item, such as one automobile for 10,000 bags of coffee., foreign trade would be extremely cumbersome and restrictive. So instead of barter, which is the trade of goods without an exchange of money, the United States receives money in payment for what it sells. The United States pays for Brazilian coffee with dollars, which Brazil can then use to buy wool from the United States, which in turn can buy textiles from Great Britain, which can then buy tobacco from the United States.

Foreign trade, the exchange of goods between nations, takes place for many reasons.

The first, as mentioned above, is that no nation has all of the commodities that it needs. Raw materials are scattered around the world. Large deposits of copper are mined in Peru and Zaire, diamonds are mined in South Africa and petroleum is recovered in the Middle East. Countries that do not have these resources within their own boundaries must buy from countries that export them.

The second, foreign trade also occurs because a country often does not have enough of particular item to meet its needs. Although the United States is a major producer of sugar, it consumers more than it can produce internally and thus must import sugar.

The third, one nation can sell some items at a lower cost than other countries. Japan has been able to export large quantities of radios and television sets because it can produce them more efficiently than other countries. It is cheaper for the United States to buy these from Japan than to produce them domestically. According to economic theory, Japan should produce and export those items from which it derives a comparative advantage. It should also buy and import what it needs from those countries that have a comparative advantage in the desired items.

Finally, foreign trade takes place because of innovation or style. Even though the United States produces more automobiles than any other country, it still imports a large number of autos from Germany, Japan and Sweden, primarily because there is a market for them in the United States. For most nations, export and import is the most important international activity. When nations export more than they import, they are said to have a favorable balance of trade. When they import more than export, an unfavorable balance of trade exists. Nations try to maintain a favorable balance of trade, which assures them of the means to buy necessary imports.

The exterior deficit of the " unique superpower" of world extends increasingly, having made the world economy walk a road full of danger. The United States and Asia countries seem not intentional to take resolute action to this. This can be comprehended surely, but is a big mistake.

The Federal Reserve has raised American interest rates by another quarter of a percentage point—its fifth hike this year. Will the federal government now do something about the cost of its borrowing?

Unlike most of George Bush’s White House team, for whom economics is a slave to politics, Gregory Mankiw, head of the White House’s Council of Economic Advisers, labors hard to square the president’s economic policies with sound economic theory. “When I wrote my first economics textbook,”he said in a speech earlier this month, “I told students to keep an eye on three indicators of economic performance: gross domestic product, inflation and the unemployment rate.” By these standards, he pointed out, the American economy is doing admirably.

The Federal Reserve seems largely to agree. On Tuesday December 14th, it raised interest rates by another quarter of a percentage point to 2.25%, its fifth rate hike this year (see chart). Output has kept up its “moderate pace”, it said, despite recent rises in energy prices. Inflation remains “well-contained”, and the jobs market continues to improve, albeit gradually. The Fed thus saw no reason to break its measured stride towards a more neutral rate of interest.

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