Trade
The U.S. Government has many different international trade deals with other countries. These trade deals are made to deliver goods to the countries people’s that is based on their wants and needs. That isn’t the only reason that the trade deals are done, they help improve a country’s economic stance. It also helps with establishing relationships between countries, but it may also be the cause of tearing down those relationships. Because of this the government has to make policies to help manage the trade that happens between countries.
Imports
In international trade imports are the goods that are bought from another country that is producing that required good that other countries may be interested in. This makes that the country receiving goods to be dependent on the country that is exporting. If the exporting country runs into problems in the political or economic sides it could cause trouble for the country that is importing from it (Amadeo, 2018). Whether you are buying something online from another country or being shipped goods from overseas both are considered importing. The country that is importing is usually because there are products that can not be produced domestically or for a low cost, so they must look to outside sources for what they desire (Staff, 2018). To pay for the products purchased overseas a country must make sure that it has enough currency that comes from the central bank of its country, which will keep tabs on its own country’s currency value (Amadeo, 2018). Imports are kept under control by tariffs and trade agreements. If a country comes to solely rely on imports it will lead to less jobs in certain areas. This is because of the cost of labor in the other country being less costly than it being made in the country that is importing. In 2017 the most that the U.S imported was technology products that was $401 billion dollars and the state that imported the most was california (Hansen, 2018).
Exports
Exports in international trade is the country that makes goods that will be sold internationality. The goods that are exported can be any type of good from food, services, technology, and machinery, as long as it’s a produced good there will be a country out there looking to buy. The countries that are looking to buy are usually those that don’t have the ability to make these goods domestically (Piana, 2001).Most countries would like to be the leading exports as it gains revenue from the outside sources. The countries that end up exporting tend to have more job opportunities as it increases work, which in turn increases production (Piana, 2001). Wages are increased along with the standard of living also improving as a result (Amadeo, 2018). It also gives them a leg up when deciding who to trade with and what policies they will put into place. These are the types of decisions that could lead to a better relationship between the countries that are in the middle of trading. Though it also has a negative effect if the country exporting decides to raise its prices, which could lead to the other country buying less from them or retaliting buy raising its own exports prices. In turn these decisions could end up affecting the political air of each country involved. This can lead to changes that causes exports to not have a steady flow upwards or downwards when trying to figure out patterns on how they should go about with what they export(Piana, 2001). It hasn’t really changed, but China continues to be in the lead when it comes to exporting with the U.S. coming in second. The United States has a top export in consumable goods, specifically soybeans and poultry that sold a total of $133 billion dollars (Isidore, 2018).
Tariffs
Tariffs are the most common policy you see when trades are set up. A tariff is a tax placed by the government that adds to the cost of imported goods. Tariffs are an important barrier to free trade and are often imposed to protect domestic industry from cheap imports (Pettinger, July 2017). Tariffs help domestic industries by raising the prices of imported goods, ensuring that domestic producers are not forced to reduce prices from increased competition. This can also protect customers from goods that aren’t made to the same standards as domestic products or that may be tainted. Tariffs can also be set into place as a retaliation technique if a country thinks that a trading partner has not played by the rules or if a trading partner goes against the government’s foreign policy objectives (Radcliffe, 2018).
Some countries make agreements to eliminate tariffs. The North American Free Trade Agreement (NAFTA) is an example of the removal of tariffs in the goods that are produced for the countries U.S., Canada, and Mexico. NAFTA entered into force in 1994 and also includes chapters covering rules of origin, customs procedures, agriculture and sanitary and phytosanitary measures, government procurement, investment, trade in services, protection of intellectual property rights, and dispute settlement procedures (Office of the United States Trade Representative, 2018). On Friday, November 30, 2018, the United States-Mexico-Canada Agreement (USMCA) was officially signed by the US, Canada, and Mexico to replace NAFTA. USMCA in includes major changes for automakers, new labor and environmental standards, intellectual property protections, and some digital trade provisions. This agreement won’t be considered by congress until 2019 and if it gets ratified most of its provisions won’t go into effect until 2020 (Kirby 2018).
Benefits of Tariffs
Tariffs benefit consumers, producers, employment, and the government in many ways. Consumers benefit from tariffs because they protect domestic industries if the industries use tariffs to improve. Domestic producers benefit from the introduction of tariffs because domestic production becomes more competitive compared to imports. Tariffs also benefit producers by protecting them increased competition. Tariffs benefit the government by increasing government revenue. Tariffs also protect jobs by making industries within the country more competitive, safeguarding jobs within these industries (Pettinger, November 2017).
Drawbacks of Tariffs
Although tariffs have many benefits, there are still drawbacks that come along with them. Because tariffs increase the cost of imports, they also cause higher prices for consumers and decrease consumer surplus. Tariffs also restrict competition for domestic producers, which encourages insufficient firms. Domestic producers may not make necessary improvements that they would have done without tariffs. Tariffs can also lead other countries to retaliate and place tariffs on exports from the US. This causes a decline in exports from the US and lower corporation tax revenue. Although tariffs increase government revenue, it is only a small percentage of total tax revenue. If the tariff placed is too high it can cause the US to no longer import the good and miss out on tariff revenue. Tariffs also cause disposable income to decrease and a net loss of economic welfare, leading to falls in tax revenue in other parts of the economy. Tariff can also have negative effects to employment. Because of the lack of competition for domestic producers, prices stay high leaving less disposable income for buying other goods causing a fall in demand and therefore less employment (Pettinger, November 2017).
Trade Agreements
Trade agreements defined is a trade pact between countries that reduces tariffs for certain products to the countries who sign the agreements. The USTR is in charge of U.S. trade agreements. Trade agreements create multiple branches for all Americans. For example, the U.S. economy improves. The main factors to trade agreements is making sure that the agreements we sign and negotiate will enforce America’s rights under those agreements and making sure it will advance Donald Trump’s trade policy. This involves us to make sure we are monitoring our trading partners’ implementation of trade agreements with the United States.
The United states has free trade agreements with 20 different countries. Some of the countries included are Australia, Canada, Costa Rica, Dominican Republic, Korea, Mexico, Panama, Peru and Singapore. These free trade agreements makes up the foundation of the WTO (World Trade Organization). These free trade agreements include bilateral agreements (between two governments) and multilateral agreements (several parties). Another trade agreement to take into consideration is the Trade and Investment Framework Agreement (TIFA). Trade and investment issues are the main focus for TIFA. The United States also have agreements called Bilateral Investment Treaties (BITs). BITs help improves the investment that is private, support U.S. exports, and grow policies that are market-oriented in countries who are partnered.
One free trade agreement the U.S. has is NAFTA. NAFTA stands for North American Free Trade Agreement. United States, Canada, and Mexico signed NAFTA. They signed in 1993 and went into effect in 1994. This trade agreement was meant to allow free movement of goods and services, competition free trade promotion, protect the people’s rights and businesses in each country, if problems arise they were resolved, and just encourage the countries to cooperate. NAFTA has increased sales and profits for U.S.A., Mexico and Canada.
Quotas
A quota is a government imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period. Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Quotas are more effective in restricting trade than tariffs, particularly if domestic demand for a commodity is not sensitive to increases in price. An absolute quota provides a definitive restriction on the quantity of a particular good that may be imported into the United States, although this level of restriction is not always in use.
When it comes to quotas there are many advantages, several include: foreign exchange implications, precise outcomes, and flexibility. The main advantage is that the volume of imports remain unchanged even when demand for articles increase. Quotas are certain and precise because the volume does remain unchanged during the process, which is why quotas are more effective than tariffs. As we continue to compare tariffs with quotas our last advantage is that quotas are more flexible than tariffs. Giving quotas more of an advantage.
There are also few disadvantages, Corruption, Monopoly Profit, Monopoly Growth, Distortion in Trade. A quota generates no revenue for the government which leads to corruption. However, in this type of situation again the comparison with tariffs is brought up again. If the government auctions the right to import under a quota to the highest bidder then quotas are similar to a tariff. Those with import licences create a monopoly profit. Quotas have a tendency to distort international trade much more than tariffs. These are a few disadvantages of quotas.