GLOBAL MARKETS AND FOREIGN TRADE

Exports and Imports

 A country’s exports are goods and services that it produces and sells to other countries. A country’s imports are goods and services that it buys from other countries. All countries export and import goods and services, and all countries benefit from it. By exporting, a country gains income. By importing, it can obtain products that it does not have within its borders.

U.S. Trading PartnersThe United States trades heavily with other nations. It exports more food than any other country in the world. It also exports many metals and other natural resources. Its manufactured goods, however, bring in the most money among all its exports. The most valuable goods the United States imports are oil and cars. The U.S.’s major trading partners, or the countries with which it exchanges the most goods and services, are listed in the on the left.

Overall, U.S. production methods are very efficient. The country could actually produce some of the goods it imports for less money than it pays for the foreign goods. To produce these items at home, however, the country would have to use more of its limited natural resources. The United States chooses instead to import certain products and to specialize in exports that other countries are less able to produce.

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Trade Balances and Money Values

 A country’s balance of trade is the difference between the value of its exports and the value of its imports in any given year. If the value of exports is greater than the value of imports, a country has a positive balance of trade for that year. It is selling more than it is buying. If the value of its imports is greater, the country has a negative balance of trade. It is buying more than it is selling. A positive balance of trade is called a trade surplus; a negative balance of trade is called a trade deficit. Of course, a trade surplus is more desirable. However, since the 1950s, the U.S. has had a trade deficit. In 1999, Americans imported $1.23 worth of goods for each dollar they exported.

U.S. Deficit GraphIn order to trade with a foreign company, businesspeople of a country must exchange their own money for the money of the other country. For instance, if a U.S. importer wants to buy cameras from Japan, he or she must first use U.S. dollars to buy Japanese yen. They the importer can buy Japanese products with the yen he or she has bought. On the other hand, a Japanese person who wants to import U.S. machinery must first buy dollars to purchase the machinery. The price of a country’s money in terms of another country’s money is called the exchange rate.

Exchange rates can go up or down without warning and can contribute to changes in the trade balances. If the value of the U.S. dollar increases with regard to the money of other countries, U.S. importers can benefit, but exporters may suffer. Suppose, for instance, that the U.S. dollar is worth about 120 Japanese yen. Then the value of the dollar increases to 150 yen. U.S. importers could buy more yen with each of their dollars. They could then use the extra yen to import more Japanese cameras. U.S. exporters, on the other hand, would be able to sell less machinery to Japan because Japanese importers would be able to buy fewer dollars with their yen.

American companies have worked hard to market their products throughout the world. However, as seen in the graph on the right, the trade deficit is still increasing.

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Multinational Corporations

 Almost every day, people come into contact with businesses of various sizes. A family may have dinner in a family-owned restaurant in their neighborhood. A businessman might buy his lunch in a fast-food restaurant that has a chain of restaurants all over the country. Other businesses people deal with are so large that they extend to almost all parts of the world. Such businesses are called multinational corporations.

A multinational corporation is a business organization that has its main office and possibly some production plants in one country. At the same time, it also has factories, sales offices, mining operations, or other business operations in foreign countries.

Sometimes a multinational corporation is just a single company that produces only one product. More often, though, a multinational corporation is a conglomerate. A conglomerate is a group of businesses that come together under one name and one organization but produce many different products. Ford Motor Company is a good example. Ford companies around the world make such varied products as cars, tools, and radios.

Some people think that multinational corporations are good forms of business. They say that multinational corporations help keep the price of consumer goods down in the United States and help people in poorer countries.

A multinational corporation is likely to have one or more factories in a developing country. A developing country is one where most people are poor and unskilled, and the nation’s economy is too weak to help them. A multinational corporation can create badly needed jobs in a developing country. In addition, the corporation may build housing for its workers, pay taxes to the country’s government, and build modern roads and airports so it can ship its products out of the country.

Many people object to multinational corporations. They note that some of these corporations have more money than the countries where they build their plants. Critics say that the corporations sometimes use their wealth to influence government leaders in those countries.

Critics also claim that U.S. multinational corporations are increasing the unemployment at home, and so weakening the United States economy. A multinational corporation pays its workers in developing countries much less money than it would have to pay U.S. workers. It may pass these savings on to U.S. consumers by charging lower prices for its products. At the same time, however, its use of cheap labor abroad is costing U.S. workers jobs at home.

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Foreign Competition

 Competition is a strong force in a country’s free enterprise system. Competition among U.S. producers is intense. Those who succeed are usually the ones who produce the best products at reasonable prices. Most people agree that this is good for the economy and the consumer. Some people are not so sure, however, that foreign producers should be totally free to compete in U.S. markets.

Some people are in favor of free trade, or unrestricted trade among nations. They believe that competition is always helpful, whether it takes place among the producers in just one country or among producers from many different countries. If producers compete internationally, they will have to sell goods of high quality. They will feel constant pressure to keep prices as low as possible. Consumers will also have a wider choice of goods and services.

On the other hand, some people believe that free trade can hurt a country like the United States. Because some foreign countries pay low wages to their workers, they can afford to sell their products at low prices. If these products enter the United States in unlimited amounts, the U.S. market would be flooded with cheap imports. U.S. companies, which pay higher wages, would be unable to compete with the low prices of foreign goods. They would have to lower wages, lay off workers, or even close down. In all cases, U.S. workers would suffer.

The U.S. government sometimes protects the country’s industries by charging tariffs, which are also called duties. Tariffs are taxes placed on imports to raise their prices. The consumer pays these taxes. If the U.S. government places a tariff on Brazilian shoes, for example, this tariff will be included in the price a person pays if she buys a pair of shoes imported from Brazil. Tariffs, therefore, can reduce the price advantage that imports may have over U.S. goods.

The U.S. government can also set quotas to protect the country’s producers. Quotas limit the amount of certain imports that may come into the country over a specific period, usually a year. The United States places quotas on steel, textiles, and many food products.

In 1992, the U.S., Mexico, and Canada completed the North American Free Trade Agreement. Over 15 years it would eliminate most trade barriers and tariffs and create the world’s largest trading zone.

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