International Trade and Finance Speech

Economics Paper 5 International Trade and Finance Speech Financial Pitfalls 2 Ladies and Gentlemen of the House, good afternoon to you all. I would like to thank you for the opportunity to speak to you this today on such an important topic – our economy. Our economy is in crises mode. To say that our economy has slowed down would be an understatement. The economy, to date, has taken a step backwards and the direction we are heading will take us from a record long-lasting recession to an all-out financial depression. Americans consume far more goods than we produce on a monthly basis.What that means, simply put, is that we continue to build more debt and get poorer with every passing month. Think of it like this – the average person goes through a certain amount of managed stress each day. When outside stress, or variables are added to daily stress it places more pressure on the body and mind. If this outside stress isn’t dealt with or managed, and as more is adde d, the body will either explode or shut down. Our economy is like the average person’s body. Most of us do not understand the current economic state of affairs.Not that we wouldn’t be able to comprehend the status, but most are unaware, as the media and national political heads are sheltering Americans from the truth and not diving in to the true issues at hand. We currently have a surplus of imports in our great nation. This should be of no surprise to us – countries that we currently hold the largest amount of deficit through imports are: †¢China †¢Mexico †¢Japan Financial Pitfalls 3 With the Chinese enjoying a spike in export capital over nearly past ten years, they have become a giant on the global economic scene.On a closer level, one that strikes the heart of every American man and woman, the impact of this surplus is being felt in our automotive industry – the true backbone of this great country. China has grown into an auto-parts mo nster as they have increased over 900 percent in exports since the beginning of the century. How are they doing this? By producing quality parts at a cheaper rate is nothing new but the Chinese are being criticized by many for benefitting from illegal currency manipulation which leads to unfair trade policies.These policies pose a real threat to American automotive jobs in the near future. International trade has a significant effect on the Gross Domestic Product. The GDP is the true market worth of officially recognized goods or services produced in a country. Think about this for a moment – if you were to go into a department store and found two shirts that were identical in color, material and stitch but one was priced ten dollars higher than the other. Which one would you choose? Easily you would pick the cheaper product and that is the issue American consumer’s face each day.Larger corporations have the ability to mass-produce products and pay their workers far le ss than those here in the states. They do this across the globe in what is called slave labor. As a result, there are fewer jobs available in the United States, more across the globe, and more goods being imported into the country and a more dramatic effect on our economy. Financial Pitfalls 4 We have exhausted our means to generate additional income for our nation through tariffs and sanctions on goods being brought into the country.The taxes levied on goods and the limits placed on incoming products and goods can impact and possibly obstruct international trade. This may also increase production costs and the possibly have an effect on the foreign exchange market. Exchange rates are driven for the most part by the amount of currency bought and sold either through speculation or international asset transactions in either services or goods. There are two types of exchange rates: short-term and long-term. The short-term exchange rates swing from minute to minute and are caused throug h changes in supply and demand for money as it is being sold from one country to another.Long-term rates are more directly affected through national monetary policies created by global governments. This has a global effect on economics. With our current national election trail heating up and the nation’s economic state of affairs in the center of discussion, there will be promises made by each candidate. The focus will not only be today’s economy but how we will move out of the red and back into the black. There are many ideas but in my mind it is simple as an old saying – you must spend money to make money. For us o make money and become financially independent, better yet, a global leader in economics, we must learn from our past. Financial Pitfalls 5 As President Bill Clinton discussed in a recent interview with Fortune Magazine, he laid out the three keys to bring our economy back – †¢Unleash the large amount of capital that is being held but not invested †¢Accelerate the resolution of the home mortgage crisis †¢Bring back manufacturing Sounds easy but it isn’t – this is not a short fix to a growing crisis but will take time for us to work together to climb back to the top. International Trade and Finance Speech International Trade and Finance Speech ECO372 March 25, 2013 The impact of international trade on the United States economy is quite significant. While historically the United States had been a nation that provided credit to other countries, it is now in a decline. This decline has caused the United States to become a major debtor, owing millions of dollars in interest to other countries. This is a result of an excess of importing, which has resulted in a surplus of imported goods. This surplus can be necessary to help offset the current deficits, but may stunt the economic growth of the United States.When there is a surplus of imported goods from foreign countries, the United States slips into a deficit. This deficit is created from the trade balance. The largest quantity of imported goods is the transportation equipment. Between 2006 and 2010, automobiles were the highest ranked import, followed by energy-related products. This surplus of imported vehicles resulted in the inability of American automobile manufacturer to produce comparably priced vehicles. This further resulted in U. S. automobile manufacturers needing to either receive government aid in some cases, or file bankruptcy and close for good.The closing of several automobile manufacturing companies and plants resulted in an increase in the unemployment rate, as displaced workers have been unable to find comparable work. International trade can also have a major impact on the Gross Domestic Products (GDP). It can affect the level at which imports and exports are operating, it can reduce consumer spending, and affect the unemployment rate. A higher rate of exports to imports will increase the GDP, while more importing will have the opposite effect. These fluctuations in trading have negative and positive effects on the U.S. economy. The more the United States exports, the more income it is gaining. This is good for the rate of employment, as the higher demand for U. S. products requires more producti vity. Trading deficits also have an impact on consumer spending. When consumer spending is high, trading deficit percentages increase. The opposite is true when consumer spending is low. Domestic import markets also increase as the value of the American dollar increases. International relations and trade are affected by tariffs and quotas implemented by theUnited States government. Tariffs and quotas allow the U. S. to differentiate between the domestic supply and the world supply. Due to protection from the government, domestic markets need not fear competition from foreign producers who provide higher quality, lower cost products. However, too many restrictions on imports could cause a decline in productive trade with foreign countries. These other countries could institute tariffs on U. S. goods which would result in the United States having to pay higher prices for imports.In addition ot all of this, international trading relationships remain unaffected, as free trade agreements allow countries to buy and sell goods at fair market value. Another factor in international trade are foreign exchange rates. Foreign exchange rates are the rate one country’s currency may be exchanged for the currency of another country. It is an economic measure implemented by the government to ensure equilibrium of trading activities. A decline in the exchange rate decreases a country’s purchasing power.Foreign exchange rates are affected by the interest rates imposed by a country for currencies as a result of demand. These interest rates are managed by the central banks of each country, in the United States this would be the Federal Reserve, or the FED. Exchange rates are determined by several factors, interest rates, productivity, inflation and debt are all factors in determining the exchange rate of any given country. Since the 1970’s, when president Nixon took steps to fully normalize relations between the United States and China, China has become one of the major import countries for the United States.While it would seem that the United States could impose many restrictions on trade with China, many would argue that it would be very unwise. A restriction on imports from China could be very detrimental to the United States economy. New restrictions would not only prompt monetary action from China, such as higher prices, it could also prompt civil actions, perhaps even war. Free trade allows countries to engage in trade without additional tariffs or quotas. If China is not imposed with high tariffs and quotas, the United States government knows that the savings will be passed on to the consumers.Limiting the amount of goods imported from china would also greatly limit the variety of products available to U. S. consumers. This would reduce profit and lead to an increase in unemployment. This could continue on the result in an unstable United States economy. In conclusion, international trade has a major impact on the economy of the U nited States. Historically the United States has been a major power in international trade and finance. Currently, the U. S. is in a decline which has cause some major debts.An increase in imports, a decrease in the GDP and fluctuations in the exchange rate have led us to being indebted to many countries while we work though the current recession. Resources: Colander, D. C. (2010). Macroeconomics (8th ed. ). Boston, MA: McGraw-Hill/Irwin. McTeer, B. (2008). The Impact of Foreign Trade on the Economy. Retrieved from http://www. economix. blogs. nytimes. com U. S. Consumption Spent on Foreign Imported Goods. (2011). Retrieved from http://www. americawakeup. net International Trade and Finance Speech International Trade and Finance Speech ECO/372 International Trade and Finance Speech Macroeconomics consists of the large scale economic factors such as interest rates and national productivity. International trade, finance and exchange rates are a large part of this study. Today, we will dive into the basic definitions and descriptions of simple terms and concepts as they relate to macroeconomics. â€Å"The trade balance is the difference between a country’s exports and imports† (Colander, 2010).When a country is exporting more than they are importing a surplus is created, so there is more production than consumption. The opposite is true for a trade deficit. A country that imports more than it exports is running in a deficit; consumption is more than production. An example of a product in the United States with a surplus is oil. Seven years ago the U. S. imported about two-thirds of their oil consumption. By 2014 it is expected that the U. S. will only import 6 billi on barrels of crude oil per day; this is about one-third of what the country uses and by 2020 U. S. il production will exceed Saudi Arabia’s (Phillips, 2010). The problem is that the oil produced in the U. S. is high-quality crude and the oil imported is heavy, sour oil. Since the refineries are currently equipped to refine the heavier oil the U. S. has a surplus of the high-quality crude. One would expect lower oil prices with the surplus, but as the current gas prices reflect this is not the case. While the process and the politics involved have many components not discussed here the crux of the situation is that a surplus of an import can cause business and domestic consumers to suffer.Gross Domestic Product (GDP) is the value of all goods and services produced in one country during a one year period. GDP is made up of consumption of goods (expected to last three or more years such as food and clothing), services, government expenditures (schools, upkeep of roads, and mili tary expenses), residential and non-residential spending, and business inventories. The equation is all of the items listed less ay imports to other countries. International trade influences the GDP by expanding markets with imported goods and services that are either not available in the U.S. or are less expensive if imported. Some of the goods imported are coffee, bananas, oil, and automobiles from Germany and Japan. The imports of these goods increase the economic GDP, but also allow the U. S. to export products to other countries. A result of this economic expansion and diversity of goods and services is competitive pricing and an increase in the market competition among producers providing domestic consumers with less expensive products. A major advantage of trading is the ability of certain producers to concentrate or specialize in certain goods.A disadvantage would be the government imposition of restrictions and limitations to protect the domestic production and market. Gove rnments have imposed taxes on trading transactions which increases the cost of importation. Many governments also restrict or limit the import of goods and service to their country. These impositions are known as a tariff or quota. Tariffs are taxes governments place on international traded goods – generally imports (Colander, 2010). They are most commonly used to restrict international trade and promote domestically produced goods.Quotas are put in place for the same reason but rather than taxing imports the quantities of product are limited. Tariffs affect trade patterns, but they also create revenue for the government often offsetting the loss of consumer surplus (â€Å"Impact of Trade Tariff Cuts: Long-Series Historical Evidence†,  2013). The exchange rates are â€Å"the price of one country’s currency in terms of another’s currency† (Colander, 2010). To understand the determination of an exchange rate one needs to think of currency as just a nother good (Colander, 2010).Consumers demand other’s countries’ currencies to buy goods and assets in that country. Foreign exchange rates are determined by supply and demand of goods. An example to understand how the demand-supply balance moves is to examine the dollar vs. rupee exchange. The dollar/rupee exchange rate will depend on how the demand-supply balance moves. When the demand for U. S. dollars in India rises and supply does not rise correspondingly, each dollar will cost more rupees to buy.Exchange rates are in a constant state of fluctuation because of the countless activities of the foreign exchange market. China currently supplies the U. S. and many other countries with goods. It would be difficult to discontinue because â€Å"buying from China is in fact buying American† (Chen, 2011). Chen, 2011 reported that America imported $374 billion of goods and services from China in 2010 and exported $115 billion to China. This created a trade deficit of $260 billion. But if calculations are based on alue-added contributions by the two countries, America actually has a trade surplus of $70 billion. One should think about the jobs that are created from the importing of goods from China rather than the jobs it is taking away. Apple employs thousands of associates in America to sell iPhones, Target employees over 350,000 American workers who sell Chinese imports, and thousands of UPS and FedEx workers deliver Dell computers, Hasbro toys, and Nike shoes to American families (Chen, 2011).Thank you for your time and I hope the information provided gives a high level understanding of international trade and finance as it relates to the current state of the U. S. macro economy. References Colander, D. C. (2010). Macroeconomics (8th Ed. ). Retrieved from The University of Phoenix eBook Collection. Phillips, M. (2013). Falling U. S. Oil Imports Will Reshape the World Crude Market. Retrieved from http://www. businessweek. com/articles/2013-01- 16/falling-u-dot-s-dot-oil-imports-will-reshape-the-world-crude-market Impact of Trade Tariff Cuts: Long-Series Historical Evidence. 2013). Retrieved from http://www. globalpolicyjournal. com/articles/world-economy-trade-and-finance/impact-trade-tariff-cuts-long-series-historical-evidence Alden, E. (2013). A U. S. -China â€Å"Trade War†: Time to Abolish a Silly Notion. Retrieved from http://thediplomat. com/pacific-money/2012/10/31/a-u-s-china-trade-war-time-to-abolish-a-silly-notion/ Chen, B. (2011). Buying From China Is in Fact Buying American. Retrieved from http://www. forbes. com/sites/forbesleadershipforum/2011/12/22/buying-from-china-is-in-fact-buying-american/