Economics

Understanding International Trade

The United States has trade relationships with virtually every country in the world.

Robert Spendlove May 1, 2016

International trade is an essential component of the U.S. economy. It is the exchange of goods and services between countries. Consumers in the United States benefit from the variety of products that come from abroad. They also benefit from exporting products to other countries. The U.S. imports more than it exports, but it still exports a large amount of goods and services. These exports total about $2.2 trillion per year. Of this total, about $1.5 trillion are goods while $700 billion are services.

Where Do We Send Our Exports?

Any time you go to the supermarket you could be participating in international trade. You might buy a banana from South America or cheese from Europe. Many consumer products come from Asian countries like China, Taiwan or South Korea. Cars come from a variety of countries, such as Japan, Germany and Mexico.

The United States has trade relationships with virtually every country in the world. The largest buyers of U.S. exports are Canada, Mexico, China, Japan and the United Kingdom. Together, these five countries account for almost half of all export revenue coming into the U.S.

What Do We Trade?

Specialization is an important part of international trade. It occurs because a country can produce a certain product more efficiently and at a lower cost than other countries. This benefits consumers.

The top exports from the U.S. include industrial supplies (petroleum products and chemicals), capital goods (machines, computers, engines and airplanes), consumer goods, cars and car parts, and food products. The top imports to the U.S. are crude petroleum, cars, computers, refined petroleum and car parts.

Politics Impact Trade

Not everyone agrees that international trade should exist without restrictions. In fact, a constant battle exists between promoters of free trade and those who want more protectionism. Promoters of free trade argue that fewer restrictions encourage greater efficiency in markets, which benefits everyone. Those who want more protectionism feel like some countries don’t engage in a fair exchange and instead take actions to only help their own economies. They think we need more tariffs, subsidies and quotas to level the playing field.

These trade policy arguments are being discussed in the current presidential race. Bernie Sanders on the Democratic side and Donald Trump on the Republican side are arguing for increased trade restrictions to protect U.S. goods and workers, while Hillary Clinton on the Democratic side and former candidate Marco Rubio on the Republican side are arguing for fewer trade restrictions and more emphasis on free trade.

The Federal Reserve Also Impacts International Trade

International trade is also impacted by decisions of the Federal Reserve. If the Fed increases interest rates, it strengthens the value of the dollar relative to other world currencies. A more valuable dollar makes imports into the U.S. relatively cheaper. It also causes exports from the United States to be more expensive in other countries. The result is a dampening effect on the sale of U.S. products to the rest of the world. With a slowing world economy, this is becoming an increasing concern.

International Trade Also Impacts Economies at the State Level

Although international trade often seems like a national issue, it impacts local economies as well. Wyoming is a large exporter of petroleum and natural resources. Utah and Idaho also rely on income generated by international exports.

Idaho’s top exports include computers and electronics, food products, chemicals and machinery. Idaho’s trade partners include Canada, China, Taiwan, Singapore and Japan. Utah’s top exports include primary metals, computers and electronics, chemicals, food, and transportation equipment. Utah’s trade partners include the United Kingdom, Hong Kong, Canada, Mexico and China.

To read more economic news compiled monthly, please view our Economic Snapshot report on www.zionsbank.com/economy.

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