Driving Forces of
International
Trade in the USA
ECON 103-Section 1
Instructor: Dr Daniel Schoch
February, 2021
Name
ID
Contribution
Noureldin Marei
2020004465
Question 2
Sana Shibli
2020004504
Question 3 and 5
Sarah Elfattal
2020004481
Question 1
Tasnim Rahman
2020004487
Question 4 and 6
Driving Forces of International Trade in the USA
What crosses your mind when you hear the term “International trade”? How can it actually boost your country’s economy?
International trade is the interchange of capital, merchandise, and services between countries (2); comparatively, a business
within a country is an entity that is involved in individual commercial and industrial acts (3). The businesses’ aim is the
individual company’s gain while the international trade’s aim is the gain of the country as a whole. Markedly, trade is
exposed to the same standards just as any other activity in the world (1). People are delusional about the idea that the
competition between organizations of the same field is the same as the relationship between countries. International trade is
all about the synergistic interchange between countries and the real advantage of it is the capability to bring the country
requirements in (1). “Trade is a kind of a production process that transforms exports into imports;” this implies that exports
are treated as the mandatory cost for imports, and this actually aligns with the concept of Adam Smith - no one acts out of
his own kindness, it’s all about the self-interest after all. Notably, a country must acquire the knowledge on how to compete
and survive in the world’s harsh marketplace to sustain its living standard (1).
Competition has a vital role in trade, as it pushes businesses
to improve their marketing strategies and be able to overtake
the market in the product they are selling. For example one of
the trading giants, the USA, are obsessed with international
competition. In fact, one of their best-selling non-fiction
books is called Head to Head by Lester Thurow. As the USA
started competing in tougher marketplaces it has had a vast
increase in productivity and quality of products thus it exports
its products worldwide and makes relations with many
countries which should ultimately strengthen their economy
(1). From what you just read from my example you’d suggest
that competition in trade is actually between countries selling
in international markets but it can also be simply between
firms and cities as to export products of more value than those imported (4). This competition would obviously increase the
productivity of the countries so they can have a more stable economy, which could ameliorate their welfare.
Productivity is defined as a ratio between the output and
input volume it’s also said when output grows faster than
the input. Growth in productivity is our opportunity to
increase output without increasing inputs. An example
nowadays is how efficient are the companies in
producing face masks for the pandemic. The more
efficient is the system the less Input is required to
generate goods it can further reduce price points.
Technological advancements, physical capital, and
human capital each of these components has helped the
U.S. raise its labor productivity by 29% from 1950 to
2018. Productivity can be improved in a country by
increasing competition, focusing more on the betterment
of skills. When a country has a comparative advantage
in producing certain items, it means the nation can make
the products at a lower cost than other countries. Which will engage other countries to trade and export goods productivity
is beneficial, not because It helps a country to compete with other countries, but because it lets the country produce and
therefore consumes more. (5)(6)(7)(8)(9)
A high value in an economy means that the focus is
largely based on activities that generate a large margin
between the final price of a good or service and the cost
of the inputs used to produce it, thus creating higher
profits for businesses and higher wages for workers (10).
Also, described as more productive a country is the higher
will be their wage rates in their specialized sector
resulting in higher value-added per worker. These
activities are not a specific set of activities rather a range
of different services. For instance, research conducted by
Statista Research Department in 2019 shows that the
greatest value added to the United States GDP was by the
tertiary sector (11). As the graph demonstrates, a value
worth 4491.7 billion US dollars was added to the US GDP
by service industry which all belong in the tertiary sector
indicating this particular sector as the higher value sector
of the US economy. However, contrary to the US
economy, the largest contributor to Argentina’s economy is its agricultural industry that falls in the primary sector hence
proving how each individual economy has a distinct sector that is considered as their higher value sector (12).
Trade barriers don’t create job opportunities even
though trade barriers are restrictions on international
trade laid by the government to protect the domestic
industry which lets the industries inside the country
develop without external interference in the market
also prevents people from using goods and services
from international companies. Trade barriers such as
tariffs raise prices and reduce available quantities of
goods and services for U.S. businesses and
consumers, which results in lower-income, reduced
employment, and lower economic output. In the
1990s the US was in agreement with Mexico to
reduce the tariff barriers, so trade was possible
between Mexico and Canada which agreement late
came to be known as NAFTA (North American free
trade agreement) in 1995 the bill was passed and
within the next 6 yrs the economy had the most rapid job growth. Concluding my point as trade barriers don’t provide more
job opportunities and the best way to increase job opportunities is for free trade.
Normally, the government can choose to protect and support domestic businesses through a method known as protectionism.
It is a trade policy that a countries government uses to promote domestic producers and hence boost the domestic production
of goods and services. This method is usually used to mitigate the competition amongst foreign and local businesses.
However, as much helpful it is to domestic firms this might not be the case when it comes to the consumers. This is so
because they might have to settle for inferior goods of lower qualities for higher prices hence these policies are more favored
by businesses but not consumers (17). Due to the unavailability of foreign goods, consumers have very limited choices and
thus might be reluctant to invest in domestic goods creating a negative impact on businesses and affecting the economy in
general. To most people’s surprise, United States is known to be one of the most protectionist countries imposing tariffs and
quotas for a major proportion of its imported goods (18). Overall, protectionism only up to a certain extent is reasonable in
a given economy.
So, what have you collected from this? Will you read more into international trade and explore its other driving forces?
What do you think are the driving forces of international trade in your economy? Are they similar to the ones we mentioned?
Do you think your economy is better? I hope this essay nudged you towards researching your economy’s status.
References
1) P.R. Krugman. (2009, 14 May). What Do Undergrads Need To Know About Trade?
2) https://en.wikipedia.org/wiki/International_trade
3) https://www.investopedia.com/terms/b/business.asp
4) Competition (economics): Trade competition. Wikipedia.
https://en.wikipedia.org/wiki/Competition_(economics)#:~:text=Trade%20competition%20can%
20be%20defined,help%20improve%20execution%20of%20strategies
5) https://www.investopedia.com/terms/c/comparativeadvantage.asp
6) https://www.brookings.edu/blog/up-front/2016/09/20/four-ways-to-speed-up-productivitygrowth/
7) https://opentextbc.ca/principlesofeconomics/chapter/20-2-labor-productivity-and-economicgrowth/
8) https://courses.lumenlearning.com/boundlesseconomics/chapter/productivity/#:~:text=Businesses%3A%20Businesses%20that%20can%20deri
ve,better%20margins%20through%20lower%20costs.
9) https://stacker.com/stories/4068/how-us-labor-productivity-has-changed1950#:~:text=Three%20factors%20contribute%20to%20improvements,299%25%20from%2019
50%20to%202018.
10) https://publications.parliament.uk/pa/cm200809/cmselect/cmberr/746/74605.htm#:~:text=As%20
NESTA%20said%2C%20%22A%20high,for%20workers.%22%5B16%5D
11) https://www.statista.com/statistics/247991/value-added-to-the-us-gdp-by-industry/
12) https://en.wikipedia.org/wiki/Economy_of_Argentina
13) https://opentextbc.ca/principlesofeconomics/chapter/34-2-international-trade-and-its-effects-onjobs-wages-and-working-conditions/
14) https://taxfoundation.org/impact-of-tariffs-free-trade/
15) https://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp
16) https://www.econlib.org/library/Topics/College/barrierstotrade.html#:~:text=The%20most%20co
mmon%20barrier%20to,produce%20than%20in%20foreign%20markets
17) https://corporatefinanceinstitute.com/resources/knowledge/economics/protectionism/
18) https://en.wikipedia.org/wiki/Protectionism_in_the_United_States