October 9, 2013
Dr. Mojtaba Ghazanfa
According to Macroeconomic (2010) Comparative advantage principle states that as long as the relative opportunity costs of producing goods (what must be given up in one good in order to get another good) differ among countries, then there are potential gains from trade. In other words it is better for both countries to trade if they have a comparative advantage in producing one item over the next. The consumers from either country would be better off with the trade because they are getting their produce at cheaper prices because of the trade.
Surplus of Imports When there is a surplus of imports that means the country that is trading (China) with the United States has more of its exports in our economy then we are exporting in their country. The standard of living overseas in China is lower than how it is in the United States, so consequently the wages are tremendously lower there than in the United States. According to Forbes magazine (2013) in 2009 United States exported $9.5 billion in electrical machinery and equipment compared to importing $72.9 billion the same year under the same category. This cheap labor and heavy population allows for china to have an abundance of eligible factory workers which will force local business to compete for lower prices or outsource that task to reach maximum efficiency. Just looking at these two numbers alone it is pointless for United States to export electrical machinery and equipment to China when they import 7.7 times more output than United States.
International Trade Effects International Trade is good for any economy because whether you import or exports goods or services you are building the country’s Gross Domestic Product, for example, if China was to export shoes to America this will be a cash inflow for China which in-turn would count towards that country GDP and show a slight increase. Domestic markets will increase production and capital because trading creates jobs and allows for business to operate in a more efficient manner (lower prices equals more customers). International Trade will even affect University of Phoenix students even though students are not directly involved in the labor force. If international trades continue to expand, then the economy can grow and create more jobs so that those individuals that seek higher education can have a strong job market in the future. Tariffs and Quotas Tariffs and Quotas are very important to international trade because they can build relationships with neighboring countries or limit the amount of goods coming into the country to protect local jobs and businesses. A tariff is a tax that governments place on international traded goods. International trading allows for consumers across the globe to compete for the better value; however, its governments job to protect what products come into the country because not all products are safe to consume. When the government creates policies to protect domestic products from foreign products it is applying quotas. It is important for government to intervene or raise taxes on goods that may be unethical or harmful to the environment.